What Is the U.S. Treasury Budget?

The U.S. Treasury Budget is a monthly statement that summarizes the total receipts and expenditures of the federal government. Officially known as the Monthly Treasury Statement, it also reveals the monthly surpluses or deficits in federal spending. If there is a deficit it indicates the means of financing it.

As a practical matter, professionals in the bond market watch the statement to see how the government plans to finance its debt in the short term and, therefore, what mix of Treasury bonds and Treasury notes will be issued to raise the money.

The monthly fluctuations in the budget statement are watched by economists as an indicator of current government spending trends and the possible direction of monetary policy.

Key Takeaways

  • The Treasury Budget is a monthly update on the receipts and outlays of the federal government.
  • If there is a deficit, the report details the mix of long, medium, and short maturity debt used to finance it. 
  • The monthly report is seen as a useful indicator of the government's current financing needs, which influences market interest rates. 

Understanding the U.S. Treasury Budget

The U.S. Treasury budget serves as a running tally of government spending and borrowing. It is an essential tool for the federal government because any changes in the budget balance may require changes in federal policy on spending and taxation.

The monthly budget data has an impact on the financial markets, both directly and indirectly. Treasury securities are the most directly impacted by the monthly statement, particularly when the monthly budget shows a higher deficit.

The deficit in the monthly budget directly correlates to how many Treasury notes (T-notes) and bonds (T-bonds) the U.S. government needs to sell to finance the operation of the federal government. As the deficit increases, more Treasury notes and bonds are sold to fund its operations.

Supply and Demand

If demand remains constant and the supply of Treasury securities increases, the market value of these financial instruments goes down. The opposite occurs if the deficit declines or is eliminated. Fewer Treasury securities will be available because there is no debt to fund.

The 10-year Treasury note is often used as a benchmark for calculating mortgage rates.

Following the law of supply and demand, the quantity of a particular product that is available causes an inverse pressure on its price. During times of high federal debt, more government securities are offered and their prices will drop.

Lower prices in bonds and notes equate to higher yields for the investor. Higher yields in the market mean the government must issue Treasury securities at higher interest rates.

When the rates on these least risky of investments increase, the effect is felt across all debt markets. A higher interest rate environment is born. 

Tools of the Treasury

The federally guaranteed obligations which the U.S. Treasury uses to balance the budget come in various forms, each with differing maturities, interest rates, coupons, and yields. All are backed by the full faith and credit of the U.S. government.

Treasury bonds have the longest maturities of all government-issued securities and are offered to investors with 20- or 30-year terms. Treasury bond investors receive interest payments every six months.

Treasury notes have a shorter maturity than Treasury bonds and have one-, five-, seven- or 10-year maturity dates. The shorter maturity notes offer lower interest rates than Treasury bonds.

Banks and investors commonly use the 10-year Treasury note as a benchmark when calculating mortgage rates.

Treasury bills have set term lengths of 13, 26, or 52 weeks. They offer the lowest yield of the three bond types but are auctioned off to investors at a discount. No interest is paid but the investor cashes them in at maturity for the higher face price.