Barron's: T-Bills Flashing Negative
Barron's posted, "Money-Market Funds Are Turning to the Fed to Fend Off Losses [sic], which tells us, "Some short-term Treasury yields have declined below zero for the first time since last year. That has investors sending their cash to the Federal Reserve to avoid losing money." The piece continues, "Several bills maturing in coming weeks and months are trading with yields that are lower than zero, according to Bloomberg data, as investors look for safe corners of markets where they can stash cash piles short-term. Bills maturing through July 1 are trading with yields below zero, though only slightly so, with most remaining higher than -0.1%. Some yields have also fallen below zero in markets for repurchase agreements, where investors lend cash overnight in exchange for Treasuries." Barron's explains, "As a result, money-market funds are sending cash to the Fed overnight instead. The U.S. central bank has an overnight facility where money-market funds, banks and government-sponsored mortgage underwriters can pledge cash overnight at an interest rate of 0%, and that facility saw nearly $433 billion of cash sent its way on Tuesday, the highest usage of that facility since late 2016, according to Bespoke Research. It was the most ever outside of the end of a quarter, a time when institutions often use the facility for regulatory reasons." The piece tells us, "There are a few reasons for the pickup in usage of that way to park cash, called the overnight reverse repurchase facility. First, the Treasury is shrinking the amount of bills outstanding ahead of the reinstatement of the debt ceiling on Aug. 1.... A second and more persistent reason is the Fed's bond-buying program.... And finally, the Treasury has started to release some of the aid it is directing to state and local governments, according to Barclays. Those municipalities may have to keep it invested in money-market funds, Treasury bills, or held as bank deposits until they find uses for it. That additional influx of cash into the system has further boosted the use of the Fed's overnight reverse repo facility." The article adds, "The Fed has already taken steps to make it easier for institutions to use its overnight reverse repo facility, however. At its March meeting, it raised the limit on the amount of cash any individual counterparty could pledge overnight to $80 billion from $30 billion. And New York Fed staffers have discussed widening the reach of the facility to smaller firms and funds, to bring a more 'diverse set of firms.'" Finally, Barron's tells us, "Barclays strategists ... expect the central bank to slightly increase the rate on its overnight reverse repo facility and the interest it pays banks on excess reserves at its June meeting. If the rate looks like it might fall to or below 0.05%, the central bank might move sooner, the strategists wrote. That means the Fed's policy rate likely won't fall below zero. But it is a reason for investors to be wary in short-term markets: They may offer safety and protection from losses when Treasury yields rise, but they aren't offering any yield."
