Bloomberg News reports that the ravenous appetite of Wall Street for government bills will undergo a test. This will occur again since the Treasury will likely ramp up the size of the forthcoming auctions. The main objective will be to rebuild the decimated cash buffer.
What about the debt limit?
In the context of Washington’s agreement in the past month to suspend the debt limit till 2025, the Treasury has issued approximately $814 billion in securities on the net so that it could get its cash balance.
To date, the investors have digested well the first wave of supply. This is pronounced since the money market mutual funds have absorbed approximately two-thirds of the issuance by pulling $499 billion overnight from the Federal Reserve reverse repurchase agreement facility.
Treasury’s stand
Given that there is a lot on the balance sheets of the primary dealers, it has let Treasury sell so much paper without distorting the front-end curve. However, the cash balance is way below the levels regarded as normal for the first time, as per Wrightson ICAP. This is why the firm sees that the Treasury is announcing cash management bills ad-hoc. It can be as early as the current week. It will lead to kicking off yet another round of increases. This is followed by boosts that will serve as a benchmark in the coming two weeks.
Treasury General Account
Bloomberg News reports that the Treasury General Account continues to run below the seasonal norms because of the constraints of the debt ceiling in the spring. Lou Crandall, the Wrightson ICAP economist, revealed this as he made a note to the clients.
Caution from strategists of Wall Street
The strategists of Wall Street caution against the inflow of bill supply. It at the end of the day depends on whether or not the market participants can digest the ultimate few hundred billion dollars out of the estimated supply of $1.3 trillion without clogging up the balance sheets of the dealer.
Aside from the above, there is also the government’s funding landscape, which stands to be unstable or uncertain.
Bill share
The Treasury is likely to telegraph that it is planning to increase the coupon auction size when it meets at the upcoming quarterly refunding. However, the forthcoming meetings might prove more challenging to decipher unknown surroundings until bill issuance.
The Treasury has planned to keep the total issuance between 15% and 20% of the marketable debt. There are strong arguments for keeping a share of T-bill at the top end range related to elevated balances at the Fed’s RRP facility and for paper.
