Treasury General Account

Developments

https://fred.stlouisfed.org/series/WDTGAL

Date End of Period	U.S. Treasury, General Account
	Millions of U.S. Dollars NSA	M/M %	Y/Y %	M/M Millions of U.S. Dollars NSA	Y/Y Millions of U.S. Dollars NSA
2023-08-01	500,702	-8.95	-25.26	-49,195	-169,209
2023-07-01	549,897	34.59	-10.66	141,336	-65,618
2023-06-01	408,561	742.19	-46.23	360,049	-351,284
2023-05-01	48,512	-83.62	-93.95	-247,697	-753,202
2023-04-01	296,209	81.99	-69.06	133,451	-661,210
2023-03-01	162,758	-63.94	-70.77	-288,549	-394,033
2023-02-01	451,307	-21.19	-33.12	-121,315	-223,490
2023-01-01	572,622	39.73	-10.47	162,813	-66,998
2022-12-01	409,809	-23.08	44.30	-122,982	125,814
2022-11-01	532,791	-16.27	277.75	-103,536	391,749
2022-10-01	636,327	-3.87	169.07	-25,593	399,832
2022-09-01	661,920	-1.19	280.97	-7,991	488,175
2022-08-01	669,911	8.84	159.45	54,396	411,711
2022-07-01	615,515	-18.99	14.63	-144,330	78,549
2022-06-01	759,845	-5.22	-10.81	-41,869	-92,084
2022-05-01	801,714	-16.26	2.93	-155,705	22,802
2022-04-01	957,419	71.95	2.70	400,628	25,132
2022-03-01	556,791	-17.49	-50.37	-118,006	-565,160
2022-02-01	674,797	5.50	-53.13	35,177	-764,849
2022-01-01	639,620	125.22	-60.36	355,625	-973,757
2021-12-01	283,995	101.35	-82.40	142,953	-1,329,519
2021-11-01	141,042	-40.36	-90.50	-95,453	-1,342,994
2021-10-01	236,495	36.12	-85.69	62,750	-1,416,544
2021-09-01	173,745	-32.71	-90.25	-84,455	-1,607,934
2021-08-01	258,200	-51.92	-83.94	-278,766	-1,349,249
2021-07-01	536,966	-36.97	-70.04	-314,963	-1,255,468
2021-06-01	851,929	9.37	-46.30	73,017	-734,644
2021-05-01	778,912	-16.45	-41.30	-153,375	-547,985
2021-04-01	932,287	-16.90	-13.37	-189,664	-143,945
2021-03-01	1,121,951	-22.07	191.50	-317,695	737,061
2021-02-01	1,439,646	-10.77	271.41	-173,731	1,052,031
2021-01-01	1,613,377	-0.01	258.10	-137	1,162,840

What could happen after Debt Ceiling Deal 2023?

Bill supply will exceed a normal pace because the Treasury will want to replenish their Treasury General Account.

Goldman Sachs estimate that the Treasury will try to rebuild the TGA to about $600 billion or $700 billion of a standing balance. On top of the normal issuance used for normal government spending, the market’s estimates are actually a little bit above $1 trillion of bills, maybe up to $1.2 trillion of bills, to come. The timeline of that supply is over the six months after the debt limit is raised, and it may sell up to $700 billion in T-bills to rebuild its coffers withing six to eight weeks of a debt deal.

The Tresuary schedule confirm this, as they expect a cash balance of $600 billion at the end of september.

Before the approval of the debt ceiling deal, the tresuary had to drawdown its cash balance to almost zero, according to analyst this move ofset the QT by the FED, and its one of the reasons the stock market had a rally in the first half of 2023.

After the debt ceiling deal is signed, analyst has now expressed worry about the liquidity drain that rebuilding the TGA will mean , combined with the normal QT the FED is doing. It will be like a double negative for liquidty, while before the event it was like a null effect between the two.

Different Scenarios it could play out?

Liquidity coming from Reserve Repo

Fed’s Reverse Repo facility stands at $2.1 trillion, and offers a reward of 5.05%.

Money market funds (MMF) the primary user of the Reverse Repo Facility have historically been the big buyers of T-bills . And there is a prevalent belief among analyst if a significant portion of U.S. Treasury securities is funded by (RRP) balances, it would have no major effect on risk assets, such as equities.

Conditions that are needed for this?

• Since the reserve repo facility has no counterpary risk, the only way to incentive MMF to move from RRP to T Bills is to offer a yield above the reward at RRP, accordind to WSJ the goverments would have to borrrow at rates close to 6%. But this would increase the cost of debt for the US and hence the deficit.
• Majority of issuance from treasuary needs to be T Bills and no long dated bonds, since MMF can only hold short term assets.

Liquidity coming from Bank Reserves

Currentely bank reserves stands at $3.3 triliion, and the FED offer reward of 5.15%.

If the debt issuance is not being supported by MMF and the reverse repo facility, a large percentage of the issuance will have to be supported by a drain of bank reserves. Some analyst suggest a rapid falling reserves level could potential be negative for risk assets and credit growth.

The problem from this scenario is that the FED has adopted an ample reserves framework , and has estimated that the level of reserves needed in an ample reserves regime is equivalent to the average level of reserves in December 2019 as a share of nominal GDP (NGDP), or 8 percent, about $2.2 trillion today.

This means that debt issuance coming from reserves, will likely drain all remaining excess reserves available, leaving the finantial system fragile. This situation combined with QT and deposit outflows that also drains bank reserves, would leave the banking very constrain a significant headwind for risk assest, credit creation and the economy.

Liquidity coming from Foreigh Holders

Foreign holders are the second larger holders of US tresuaries with 7.57 trillion, about 23% of federal debt, as of March 2023.

However, since beginning of 2022 they have become net sellers, with a Y/Y change of -5.4% as of Q4 2022, and a decline of about 400 billion from the peak. Inflowns of 200 billions in March 2023, are due to the fligh to safety that happened during the banking crisis turmoil in march.

So, giving the recent trend, and the fact that is not unccomon for foreign holders to reduce US treasuries during recessions and finantial stress especially when the US dollar is strong , is not expected that these type of investors will be able to absorb a large part of the US debt issuance during next months.