The Treasury budget deficit rose to $85 billion in December from a deficit of $21.3 billion in December a year ago, and compared with expectations for a deficit centering on $70 billion for December 2022.

The latest monthly deficit reflected budget outlays at $539.9 billion, compared with $508.0 billion in December of last year, while receipts, at $454.9 billion compared with $486.7 billion last year.

For the first three months of the new 2023 fiscal year to date, the deficit reached $421.4 billion, up from $377.7 billion in the same period in fiscal 2022.

Forecasters see a $70.0 billion deficit in December that would compare with a $21.3 billion deficit in December a year-ago and a deficit in November this year of $248.5 billion. December is the third month of the government's fiscal year.

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.

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.