Financial analysts on Wall Street predict a further decrease in the issuance of Treasury bills following a significant influx of tax receipts, boosting the government's cash reserves. This adjustment comes as the Treasury experiences a substantial increase in its cash balance, driven by the seasonal surge in tax payments.
The collection of taxes, especially during this period, has led to a lesser need for the issuance of short-term government debt to fund operations. The amount of tax revenue collected this season is expected to surpass previous years, fueled by higher income levels and a robust stock market. Since the end of March, approximately $149 billion in bills have been repaid, showcasing the Treasury's shrinking need for new debt issuance.
Barclays Plc anticipates a $150 billion reduction in the supply of Treasury bills, projecting the Treasury General Account to reach a peak of around $1 trillion by month-end. In a similar forecast, JPMorgan Chase & Co. strategists predict a $116 billion cut in T-bill supply in the upcoming weeks, with a potential for even larger reductions, deviating from their initial April prediction of a $131 billion decrease.
JPMorgan strategists, led by Jay Barry, highlighted the potential underestimation of the strength of forthcoming tax receipts, attributing this to the tight labor market and last year's strong asset performance. They referenced the nearly $600 billion in tax revenues collected two years ago, a result of a buoyant stock market and economic recovery, which are deposited into the Treasury General Account, essentially serving as the government's checking account.
Typically, the Treasury begins to increase the size of bill auctions by June as it spends down its cash. However, unexpectedly high tax collections can lead to years where the supply of Treasury bills is reduced. For instance, in 2022, the Treasury’s bill supply decreased by about $540 billion from March to July.
According to Barclays strategist Joseph Abate, as of the end of March, the Internal Revenue Service processed slightly fewer returns than the same period last year. Yet, corporate taxes are up 15% to 20% from their 2023 pace, and withheld taxes have seen about a 3% increase, reflecting a stronger labor market and higher wages.
JPMorgan anticipates the majority of individual tax receipts to be submitted in the days surrounding April 15, attributing this to the growing proportion of electronic filings and the IRS's improved efficiency in processing non-electronic returns.
