U.S. to borrow less, temporarily, as big banks repay aid

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Kicking the can down the road, just a bit: The Treasury today said it won’t need to borrow as much as it had expected this quarter.

But it boosted its estimate of fourth-quarter borrowing.

The Treasury said it anticipated borrowing $406 billion in the quarter ending Sept. 30, down from its previous estimate of $515 billion, thanks to lower-than-expected net outlays under various economic recovery programs.


In part, the Treasury has been helped by the total of $70 billion in capital assistance that banks including Goldman Sachs Group and JPMorgan Chase & Co. have returned to Uncle Sam in recent weeks.

But fourth-quarter borrowing will ramp back up to $486 billion, the government estimated. Lou Crandall, chief economist at research firm Wrightson ICAP, had estimated that the Treasury’s fourth-quarter debt sales would total about $400 billion.

The ‘clear message’ is that the government’s need to borrow massive amounts via longer-term debt isn’t coming down much anytime soon, Crandall said. Most of the spending tied to the Obama administration’s fiscal-stimulus plan won’t kick in until 2010.

Crandall expects the federal deficit in the fiscal year beginning Oct. 1 to ease only slightly, to $1.3 trillion, from at least $1.4 trillion this fiscal year.

Buyers still show up in large enough numbers for new Treasury notes and bonds, but the U.S. had to pay higher-than-expected yields at last week’s record auctions of two-year and five-year notes -- an indication of market indigestion.

Treasury bond yields jumped again today, but analysts said that was mostly a reaction to upbeat reports on manufacturing activity and construction spending. The perception that the economy is improving is again luring money out of government bonds and into stocks and commodities.

The 10-year Treasury note yield rose to 3.63% from 3.50% on Friday. The yield still is well below the recent peak of 4% reached on June 10.

The government still pays amazingly low rates for money -- amazing, at least, if you think that the long-term trend in interest rates has to be up.

-- Tom Petruno