What is a Treasury Budget

The Treasury budget is a statement released by the U.S. Treasury on a monthly basis. The data released by the treasury budget accounts for the surpluses or deficits of the federal government. An excess is the amount of a resource that exceeds the portion utilized. Conversely, a deficit is the amount by which a resource falls short of its need.

The government's fiscal year begins in October, and the treasury budget data’s monthly fluctuations are helpful indicators of budget trends and the direction of monetary policy.

BREAKING DOWN Treasury Budget

The U.S. Treasury budget is the monthly accounting of the surplus or deficit of the federal government funds. The Treasury budget is an essential tool for the federal government, because any changes in the budget balance may result in changes in federal policy on spending and taxation.

The U.S. Treasury, created in 1789, is the government department responsible for issuing all Treasury bonds, notes and bills. Among the government departments operating under the U.S. Treasury umbrella are the Internal Revenue Service (IRS), the U.S. Mint, the Bureau of the Public Debt, and the Alcohol and Tobacco Tax Bureau.

Financial Markets React to the Treasury Budget Actions

The Treasury budget date has an impact on 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 government needs to sell to finance federal operations. This relationship means that as the deficit increases, more treasury notes and bonds are sold to fund the United States government.

If demand remains constant and the supply of Treasury securities increases, the value of the financial instruments goes down. Alternatively, the opposite occurs if the deficit goes down or is eliminated, fewer Treasury securities are available because there is no debt to fund.

Following the law of supply and demand, the effect of the availability of a particular product causes an inverse pressure on the price of that product. During times of high federal debt, as government securities are offered, the cost of those securities 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 risk-free rates increase, the effect is felt across all debt markets, and a high-interest rate environment is born. This atmosphere is bearish for the equity markets.

Tools of the Treasury Budget

Federally guaranteed obligations which the U.S. Treasury uses to balance the budget come in various forms, with differing maturities, interest rates, coupons, and yields. These securities are issued with the full faith and credit of the U.S. government but differ in the lengths of time they have issued and the manner in which they pay interest to investors.

Treasury bonds have the most extended maturities of all government-issued securities, offered to investors with 20 or 30-year terms. Treasury bonds investors receive an interest payment every six months per the terms of the bond issue.

Treasury notes have a shorter maturity rate than Treasury bonds and often have a one, five, seven or 10-year maturity dates.  The shorter maturity rates offer lower interest rates than Treasury bonds, but still, provide interest payments. Banks and investors commonly use the 10-year Treasury note, as a benchmark when calculating mortgage rates.

Treasury bills have four set terms lengths, 13, 26 or 52 weeks. They offer the lowest yield of the three bond types but are auctioned off to investors at a discount.