Benjamin Purvis and Liz Capo McCormick / Bloomberg News (TNS)
The reduction in the treasury of the US Treasury Department that helped fuel imbalances in short-term interest rate markets has now exceeded $ 1.5 trillion and the distortions may be far from over.
The cash balance swelled last year as the government stepped up borrowing and spending to combat the economic effects of coronavirus-related closures, reaching as high as $ 1.831 billion in July 2020. But a combination of government spending and the situation surrounding the United States’ recovery The debt ceiling, which came back into effect this month, brought it down to less than $ 314 billion on Wednesday. It is the smallest since December 2019, before the start of the COVID pandemic.
One of the main aspects of the reduction has been the decline in treasury bill issuance, which has caused investors to scramble to find a place to park their money. Much of that available money – over $ 1,000 billion – ended up in the Federal Reserve’s reverse repo agreement facility. He also kept downward pressure on the rates of all kinds of short-term instruments, sometimes sending market rates for pensions and treasury bills below zero.
The cash balance has continued to decline as the Treasury engages in various measures to formally keep U.S. borrowing below the restored limit of $ 28.4 trillion. The supply of bills has fallen 17% to nearly $ 850 billion this year, according to Barclays Plc, and strategist Joseph Abate predicts it will contract an additional $ 300 billion or more until the end of October.
Of course, in the longer term, there may also be pressures the other way around, if and when Congress reaches a resolution on the debt ceiling. The Treasury itself is currently working on the assumption of a cash balance of around $ 750 billion at the end of September. Depending on whether or not Washington lawmakers come to a deal, that may need to change, but if it does, the money may well come out of the market quickly at some point.