All articles tagged with #treasury general account
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.
The Fed's liabilities have seen significant movements, with Overnight Reverse Repurchase agreements (ON RRPs) plunging by 45% since December 2022. Money market funds have been withdrawing their cash from RRPs to invest in Treasury bills. Additionally, foreign official RRPs have dropped by 25% since January 2023. Reserves have risen since the March bank panic, but overall, the combined balance of Reserves and RRPs has decreased by 16% since December 2021. Currency in circulation has dipped slightly, while the Treasury General Account has reached $537 billion.
The US national debt has surged by $851 billion in just one month, reaching a staggering $32.32 trillion, according to the Treasury Department. This increase is due to a combination of marketable and nonmarketable Treasury securities. The Treasury Department has been selling large amounts of Treasury bills and Cash Management bills to refill its checking account, known as the Treasury General Account (TGA). However, this process drains liquidity from the markets, which is further compounded by the Federal Reserve's quantitative tightening (QT) measures. The Treasury expects to borrow an additional $733 billion in marketable securities in the coming months to reach a TGA balance of $600 billion by the end of September. Despite this flood of new issuance, the Treasury market has remained relatively calm, with short-term yields reflecting expectations of rate hikes and long-term yields indicating anticipation of rate cuts and a return to 2% inflation.
A debt ceiling agreement is likely to come soon, which means the Treasury will be able to refill the Treasury General Account, leading to a decrease in reserves and reduced liquidity levels in the markets. The size of the Fed's balance sheet has been shrinking again, which has been neutralizing some of the effects of the declining TGA account. The debt ceiling resolution would lead to a refill of the TGA, which has kept the author leaning bearish and a non-believer in the rally thus far this year.
The recent wave of liquidity in the equity market is near its end, and depending on how much the reserve balances sink over the next two to three weeks, the S&P 500 could fall back to its October lows. The Treasury General Account is down to its last $85 billion and is set to rise significantly as tax season comes to an end, which should work to drain liquidity from the markets. The decline in the Treasury General Account has helped to provide the markets with excess liquidity, but with tax receipts set to pour in and the recent debt issuances, the Treasury General Account should rise, which should work to drain liquidity from the markets.