Thursday, September 28, 2023

Treasury bill surge could finally flush some cash out of Fed reverse repo facility - Yahoo Finance

By Michael S. Derby

NEW YORK, June 7 (Reuters) - Restored U.S. Treasury borrowing power in the wake of the debt ceiling resolution may finally push money out of a Federal Reserve facility that has been hoarding massive amounts of cash for an extended period of time.

On Wednesday, the Treasury said it would boost Treasury bill issuance to rebuild the government’s cash holdings after elected leaders agreed to lift the debt ceiling. That has implications for the Fed’s reverse repo facility, which has drawn in over $2 trillion per day, largely from money market funds, over the last year, from essentially no usage into the spring of 2021.

Reverse repo usage hit a record on Dec. 30 at $2.554 trillion and has been hovering at around $2.1 trillion to $2.2 trillion most days this year. On Wednesday it stood at $2.161 trillion.

In the wake of the Treasury guidance, Barclays Capital analysts said given that the government is looking to have a month-end cash balance of $425 billion bolstered by short-term debt issuance - it was at $48 billion on May 31 - it suggests $400 billion is likely to come out of the reverse repo tool. That puts the facility on a path to decline to $1.75 trillion, bank analysts said.

Others expected a decline but were less certain about the magnitude. Vail Hartman, U.S. rates strategist at BMO Capital Markets, said his firm sees a total of $1 trillion in total bill issuance lying ahead and noted that while it’s “difficult to say” the direct impact on reverse...

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