All articles tagged with #liquidity drain
A $500 billion liquidity drain is imminent due to the rise in the Treasury General Account, which could tighten market liquidity and pressure equity markets, especially if overnight funding rates approach or exceed 4.5%, with potential intervention from the Fed's standing repo facility.
Despite a liquidity drain caused by heavy Treasury debt issuance, the U.S. stock market continues its rally, with the S&P 500 up 19% and the Nasdaq Composite up 37% this year. The liquidity drain, which was expected to impact financial markets, has not had a significant effect due to money-market funds allocating more cash to new Treasury bill issuance. The Federal Reserve's overnight reverse repo facility has seen a decrease in usage, falling to $1.7 trillion, while the Fed's balance sheet has contracted to about $8.3 trillion. BofA Global analysts expect the liquidity drain to continue until a recession occurs or scarcity hits banking reserves.
Shares of US banks fell on Monday amid concerns that a flood of Treasury bill issuance following the raising of the US debt ceiling would drain liquidity from lenders. The US government is expected to issue $1tn or more of short-term debt to replenish its Treasury General Account (TGA) or cash reserves that were depleted during the political haggling over the debt ceiling. U.S. regulators, led by the Federal Reserve, are also expected to propose this month increasing average bank capital requirements by as much as 20%.