|Treasury Budget - Level||$51.0B||$41.0B to $51.0B||$51.8B||$-82.4B|
The Treasury's budget came in at an expected surplus of $51.8 billion in June. Now nine months into the government's fiscal year, the budget deficit stands at $313.4 billion which is a very solid 14.3 percent below this time last year. Total receipts are up 8.3 percent year-to-date with tax receipts very strong, up 11.6 percent year-to-date for individual taxes and up 8.7 percent for corporate taxes. The spending side is up 5.1 year-to-date with Medicare up 8.0 percent and defense down 1.7 percent.
Market Consensus Before Announcement
The Treasury budget is expected to show a $51.0 billion surplus in June, down from an unusually large $70.5 billion surplus in June last year. Otherwise, the Treasury's balance sheet has been improving and, seven months into the government's fiscal year out to May, was running 16 percent below the prior year.
The U.S. Treasury releases a monthly account of the surplus or deficit of the federal government. Changes in the budget balance of the annual fiscal year (which begins in October) are followed as an indicator of budgetary trends and the thrust of fiscal policy.
The budget data have several direct and indirect meanings for the financial markets. The most direct relationship lies between the size of the budget deficit and the supply of Treasury securities. The higher the deficit, the more Treasury notes and bonds the government must sell to finance its operation. From there it's simple supply and demand -- if demand is constant but the supply of bonds goes up, the price goes down. The same is true if the deficit falls or is eliminated altogether -- the government needs to sell fewer Treasury bonds, so the supply drops and the price of T-bonds rises. In the past few years, the budget deficit has increased dramatically, and this has put more Treasury securities into the market place.
The Federal government borrows money through the issuance of Treasury securities; so higher deficits mean a larger supply of securities and (again, assuming constant demand) lower prices. With notes and bonds, lower prices are equated with higher yields, so in this example, the government borrows money at higher interest rates. That impact ripples across all other interest rate-bearing securities and creates a higher interest-rate environment for stocks, which is bearish.
In addition to following the trend in the budget deficit or surplus, investors can gain valuable insight to the state of the economy by looking at the government's tax receipts. Higher tax receipts lead to an improved deficit situation when economic conditions are strong; conversely, lower tax receipts reflect a sluggish economic environment.
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