The U.S. Treasury released its "Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association May 5." RBC Capital Markets strategist Michael Cloherty explained the minutes, "Treasury is introducing a new cash balance target, where they will always keep on hand enough cash to handle one week of outflows with a minimum target of $150bn. Note that those outflows are not just Treasury maturities/interest payments -- because the Tsy cannot prioritize payments, the Tsy will always target enough cash to make all government payments for a week. Tsy says the extra issuance needed to address this will be in bills: specifically the 1m and 3m maturities will get extra attention. This is because bills are very low as a historical percentage of outstanding debt, and that there is a massive increase in bill demand coming as 2a-7 reform drives cash from Prime money funds to Government money funds. Note that even with the Tsy issuing more, we don't think the additional supply will be enough to rebalance supply and demand at the front of the curve -- bills are likely to trade at extremely rich levels due to the structural increase in demand. The elephant in the room around the cash balance policy is the debt ceiling, as the Treasury will be unable to hit its cash balance target whenever it gets close to the ceiling. What this means is that the cash balance swings, and therefore the bill supply swings, will be much, much higher around debt ceiling episodes that they have been in recent years. Since we don't expect a large increase in the debt ceiling until 2017 at the earliest, this means more disruptive debt ceiling episodes. And it means that for the next few years there is virtually no tightening effect from the Fed allowing its maturity of Tsys to run off. Fed run-off would simply mean that an overnight reserve is being removed from the market, and replaced by 1m and 3m bills-- there is very little duration hitting the market from Tsy run-off. So dont expect a slower tightening path in 2016 due to run-off." Bloomberg also writes, "U.S. to Raise Treasury Bill Supply, Hold Bigger Cash Buffer." It says, "The U.S. will increase the supply of Treasury bills to meet growing demand and raise the amount of cash reserves the government holds to a minimum of $150 billion in case of a market disruption."

Email This Article




Use a comma or a semicolon to separate

captcha image

Daily Link Archive

2024 2023 2022
March December December
February November November
January October October
September September
August August
July July
June June
May May
April April
March March
February February
January January
2021 2020 2019
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2018 2017 2016
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2015 2014 2013
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2012 2011 2010
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2009 2008 2007
December December December
November November November
October October October
September September September
August August August
July July July
June June June
May May May
April April April
March March March
February February February
January January January
2006
December
November
October
September