US: Treasury Budget


Mon Mar 12 13:00:00 CDT 2018

Consensus Consensus Range Actual Previous
Treasury Budget - Level $-216.0B $-230.0B to $-200.0B $-215.2B $49.2B

Highlights
Tax receipts are down modestly after the first two months of the calendar year, 0.5 percent lower for individual taxes at a two-month total of $257.3 billion and 1.2 percent lower for corporate taxes at $11.5 billion. The government's deficit in February is a nearly as-expected $215.2 billion with corporate taxes actually slightly in the minus column during the month. Looking at the 5 months so far in fiscal year 2018, the government's deficit is a substantial 11.5 percent deeper at $391.0 billion than this time last year. Total receipts are up 2.5 percent over those five months but spending is up 4.4 percent with the largest gain in defense at 4.8 percent.

Market Consensus Before Announcement
The Treasury budget for February will offer early indications on the effects of this year's tax cut. The Econoday consensus is calling for a monthly deficit of $216.0 billion.

Definition
The U.S. Treasury releases a monthly account of the surplus or deficit of the federal government. Changes in the budget balance reflect Federal policy on spending and taxation. The government's fiscal year begins in October.

Description
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.