More than $ 1,000 billion in short -term treasury bills should flood the American market over the next 18 months, a direct consequence of the debt ceiling. The US Treasury must indeed reconstruct its liquidity reserves, undermined by the financing of the country’s massive budget deficit.
But don’t worry buyers: monetary funds display an intact appetite. With a record of $ 7.4 trillions of dollars of assets on July 1, these funds, which invest in short -term and low risk securities such as treasury bills and reaches agreements (rest), say they are ready to absorb additional offer.
The debt ceiling was noted from 5 trillion to $ 41.1 trillion two weeks ago, following the adoption of the law baptized “One Big Beautiful Bill”. The operational balance of the Treasury fell to $ 313 billion on July 3, according to Wrightson ICAP, the day before the promulgation of the tax and budgetary law of President Donald Trump.
Treasury bills, liquid assets and without risk, are essential to financial markets and to finance public spending. To fill his boxes, the secretary of the Treasury Scott Bessent said that putting more long -term debts was not relevant in view of the current rates. The FED maintains its key rate between 4.25 % and 4.50 % since December.
JP Morgan, Barclays and TD Securities believe that treasury emissions could reach between 900 billion and 1.6 trillion of dollars over the next 18 months, more than their initial projections before the ceiling.
“It seems a lot, but we welcome this offer favorably and think we can absorb it without difficulty,” said Susan Hill, head of the government liquidity group at Federated Hermes (631.1 billion dollars of assets under management). The company offers several government and primary monetary funds.
However, the short -term offer on the short -term offer seem modest compared to the episode of the debt ceiling two years ago, when the treasure had issued 1.1 dollars in three months in June 2023, to reconstruct its reserves that have fallen to 23 billion.
Lou Crandall, chief economist of Wrightson, believes that the position of the treasure is much more solid than in 2023: “This time, the debt ceiling crisis did not go to the end, they therefore start with 300 billion more in liquidity”, he underlines.
Despite everything, the offer of treasury bills expected this year exceeds that of the previous crises of the debt ceiling: in 2011, the Treasury had issued around $ 300 billion in the months following the increase in the ceiling, and around 400 billion at the end of 2013.
Banking estimates for the additional offer of treasury bills within five months in 2025 oscillate between 650 billion and 830 billion dollars.
Rise in power; Decrease in reverse rest
After the adoption of the expense plan, the treasure noted last Tuesday the size of its auctions of good to four and eight weeks of 25 billion dollars each, or 150 billion for each deadline. Three other auctions, totaling 225 billion, are scheduled this week.
These increases should constitute most of the adjustments for July, even if the treasure may not have said its last word.
“Many monetary funds avoided the August deadlines because of the debt ceiling, so this part of the curve will be highly requested,” said Jan Nevruzi, strategist American rate at TD Securities.
One point of vigilance, however: the volume of the FED FACILITY (RRP) of the Fed, where the monetary funds place their surplus liquidity, fell to 182 billion dollars on July 11, against a summit of 2.5 trillion in December 2022.
Without this reserve of liquidity, some question the capacity of funds to absorb more treasury bills if they are already fully invested. In 2023, they had drawn from this reserve to buy the wave of new vouchers.
In a repo reverse, investors lend liquidity to the Fed for one night, at a rate of 4.25 %, in exchange for government titles, with redemption commitment.
The quantitative tightening of the FED, which consists in allowing time -to -be -to -be -leased titles to be due to mortgage loans without reinvestment, has dried up the liquidity of the financial system and reduces the surplus of cash before placed in RRP.
Analysts, however, judge that monetary funds should reallocate part of their investments from conventional rest to treasury bills. According to JP Morgan, rest represent 37 % of their assets.
“The share of investments in funds in the repo market remains high, so it is arbitration to treasury bills if the value is there,” explains Susan Hill. Currently, good to three months report 4.353 %, more than the rate of guaranteed rest (SFR) at 4.31 %.
Analysts also highlight the persistent attraction of monetary funds for investors, which should support the growth of their outstanding and, therefore, the demand for treasury bills.
The yields of monetary funds exceed 170 base points those of bank deposits, a historically wide difference, recalls Samuel Earl, strategist rate at Barclays. Households, which hold 10 trillions in term deposits and savings accounts, should continue to transfer their liquidity to the monetary funds, he adds.
