Remember when the U.S. government nearly ran out of cash during the debt ceiling standoff? Its bank account sank below $50 billion — for perspective, the Harvard endowment has more money than that.
The latest: One deluge of T-bill issuance later, that account — known as the Treasury General Account — is back up over $500 billion.
Why it matters: The need to execute an unprecedented amount of Treasury issuance in just a few months was a by-product of the debt ceiling fight, which effectively froze Treasury issuance earlier this year. It threatened to put the government’s ability to fund itself at risk, even after Congress finally raised the ceiling.
Flashback: Market participants rang alarm bells. They warned that the glut from playing catch-up could overwhelm the system, suck money from struggling banks, or generally gum up the markets in unforeseen ways.
How it's going: So far, so good.
- “In a difficult market, these things can be difficult to do. But we've been in a reasonably stable market,” says Robert Tipp, chief investment strategist at PGIM Fixed Income.
State of play: Since the debt ceiling deal passed, the U.S. Treasury has raised about $600 billion by selling short-term bills.
- It will likely raise another $400 billion by the end of September, followed by another $300 billion or so during Q4, TD Securities analysts estimate.
In the weeds: Money market mutual funds purchased 66% of June's bill issuance, partly by shifting holdings out of an overnight Fed facility, according to a recent BofA Global Research note. (That Fed facility is now at about $1.7 trillion, down from about $2.3 trillion at the end of May.)
- Market participants had hoped that would happen — rather than have more money drain from a banking system damaged by deposit outflows earlier in the year.
- "The risk that the issuance pulls significant cash out of banks in the near-term has declined,” says Gennadiy Goldberg, TD Securities' head of U.S. rates strategy.
Meanwhile: Primary dealers — the investment banks that buy Treasuries from the government and then sell them to investors — also appear to have absorbed some of the bills.
- So-called dealer inventories of bills have swelled to historically high levels in recent weeks, according to New York Fed data.
What to watch: Eventually dealers will want to want to unload some of this to the market, which could put some upward pressure on yields, Goldberg notes.