"the Treasury Department sold less securities from January through June than matured, the first time that has happened since 2000...the fiscal outlook is so good that investors and strategists are beginning to handicap which maturities the government may stop selling or even buy back for the first time in five years."
This is in spite of continued military spending in Iraq. The Bloomberg piece also noted that
"The government has reduced the sizes of its auctions of two-, five- and 10-year notes to avoid letting cash pile up for the past two years. Ten-year notes were cut to $21 billion from $23 billion a quarter in 2005. Five-year notes, sold monthly, were reduced to $13 billion from $15 billion. Quarterly three- year note sales were suspended in May."
Also, "The deficit as a percentage of gross domestic product narrowed to 1.9 percent in 2006 from 3.5 percent in 2004"...
Conveniently, "The drop in supply comes just as international investors, owners of more than half of all Treasuries, slow their purchases. They bought a net $16.2 billion a month on average in the first four months of this year, compared with $28.2 billion a month in 2005."
It would appear that the US economy is experiencing a virtuous cycle. The fact that the US is needing to borrow less at the same time that foreign investors have decided that they wish to loan the US less is striking. Should the US reduce its spending in Iraq over the next year, as it appears likely to do, there should be even more improvement in the budget deficit.