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(Bloomberg) — The government has issued an attractive $1 trillion in Treasury bills since suspending the debt-limit in early June. So far the market has not paid any attention to it. 6park.commost read from bloomberg 6park.comDespite all the concerns about whether the market will be able to pick up supply, investors faced with uncertainty over the economy and the Federal Reserve’s policy path have piled into short-term debt, allowing issuance at 5%. More yield is being achieved. 6park.comAnother evidence of the liquidity crunch in the market is the relative stability in the Fed’s overnight reverse repo facility. Despite the flurry of issuance, the difference between bill yields and so-called overnight index swaps, which investors use as a proxy for the Fed’s path, is hovering above zero and investors need cash from the overnight facility (RRP). discouraging them from withdrawing. Money-market mutual funds – the largest purchasers of T-bills and the primary RRP counterpart – continue to deposit more than $1.8 trillion with the central bank, although this is down from $2.16 trillion at the beginning of June. 6park.com“As far as I can tell, supply has been digested in an orderly manner,” said Zachary Griffiths, senior fixed-income strategist at CreditSights. “We were saying that the huge wave of bill supply is largely not going to be a major issue for the market as the front end is ready to deploy a lot of cash if the yield on RRP moves too high.” 6park.comBusiness News 6park.comMarkets absorb a $1 trillion increase in T-bill supply without a hitch 6park.comby Brian Neeley August 21, 2023 6park.comMarkets absorb a trillion increase in T-bill supply without a hitch 6park.com(Bloomberg) — The government has issued an attractive $1 trillion in Treasury bills since suspending the debt-limit in early June. So far the market has not paid any attention to it. 6park.commost read from bloomberg 6park.comDespite all the concerns about whether the market will be able to pick up supply, investors faced with uncertainty over the economy and the Federal Reserve’s policy path have piled into short-term debt, allowing issuance at 5%. More yield is being achieved. 6park.comAnother evidence of the liquidity crunch in the market is the relative stability in the Fed’s overnight reverse repo facility. Despite the flurry of issuance, the difference between bill yields and so-called overnight index swaps, which investors use as a proxy for the Fed’s path, is hovering above zero and investors need cash from the overnight facility (RRP). discouraging them from withdrawing. Money-market mutual funds – the largest purchasers of T-bills and the primary RRP counterpart – continue to deposit more than $1.8 trillion with the central bank, although this is down from $2.16 trillion at the beginning of June. 6park.com“As far as I can tell, supply has been digested in an orderly manner,” said Zachary Griffiths, senior fixed-income strategist at CreditSights. “We were saying that the huge wave of bill supply is largely not going to be a major issue for the market as the front end is ready to deploy a lot of cash if the yield on RRP moves too high.” 6park.comALSO READ: 6park.comHow will dollarization affect the pet food market in Argentina? 6park.comUS stocks- Dow, S&P 500 close on rising US interest rate concerns, bank stocks fall 6park.comStill, the question will be how easily market participants will be able to digest the next wave of issuance, which strategists at JPMorgan Chase & Co have estimated at about $600 billion between now and the end of the calendar year. He added that the Money Fund still has significant capacity to absorb more Treasury bill supply. 6park.comthe story continues 6park.comMoney-market funds have a weighted-average maturity of about 25 days, and institutions add periods when the Fed is getting closer to cutting interest rates. There is little evidence of change. And with T-bills making up only 25% of government money fund portfolios at the end of July, allocations remain low, according to Crane data, leaving room to expand holdings and tap RRP funds where allocations exceed 30%. 6park.comAnd, even if the additional bill issuance later this year proves difficult to digest, higher rates on bill yields would result in wealth funds being encouraged to withdraw cash from the reverse repo facility where there is still plenty of cash | |||
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