By David Enna, Tipswatch.com
The U.S. Treasury issued guidance this morning on its plans to increase issuance of Treasury bills in aftermath of the now-resolved debt-ceiling crisis. The Treasury is rebuilding its cash balance, and that means it will stage larger and additional auctions, focusing on shorter-term issues.
From the press release:
Initial increases in bill issuance will be focused on shorter-tenor benchmark securities and cash management bills (CMBs), including the introduction of a regular weekly 6-week CMB (the first of which will be announced on June 8). Treasury has already announced a series of bills for issuance between June 2 and June 13 inclusive that will result in an increase in bill supply of $131 billion, which is expected to bring Treasury’s cash balance to approximately the same level by June 14. Tax receipts on June 15 will further increase Treasury’s cash balance.
As the early June debt ceiling “x-date” approached, the Treasury staged some unusual T-bill auctions, including $15 billion in a 1-day cash management bill on June 2, which got an investment rate of 5.145%, plus $50 billion in a 38-day on the same day, with an investment rate of 5.367%. On June 1, it offered $25 billion in a 3-day CMB, which got an attractive investment rate of 6.256%.
That 1-day auction was the first of its kind since 2007, according to CNN.
The Treasury hasn’t yet posted the auction size for the new 6-week CMB. The announcement should be coming tomorrow. Most likely it will auction with an investment rate of about 5.2%, given current trends.
(Update: The 6-week CMB is sized at $45 billion. Auction date is June 13.)
Cash management bills are used to help manage the Treasury’s short-term financing needs, fitting between regularly scheduled weekly auctions of 4, 8, 13, 17 and 26 weeks. These cash-management auctions are open to the public, but not offered on TreasuryDirect. You have to place orders through a bank or brokerage.
We’ve also seen the size of the regular short-term auctions increasing dramatically this week:
- The next 4-week T-bill auction on June 8 will be for $72.6 billion, an increase of at least 21% over the more-typical weekly auction size of $50 billion to $60 billion.
- The next 8-week auction, also June 8, will be for $50 billion, versus a more typical recent size of $35 billion to $45 billion.
- Monday’s 13-week auction was for $65 billion, up from $57 billion a week ago.
- Also Monday, the 26-week auction was for $58 billion, versus $48 billion a month ago.
What this all means
So far, the increased size of the Treasury issues hasn’t had much of an effect on yields, which were expected to fall anyway once the debt-ceiling crisis was resolved. Some financial analysts have warned that this deluge of Treasury offerings could affect liquidity and have a negative effect on the stock market. But that doesn’t seem to be the case, so far.
From a MarketWatch report:
“Our key takeaway is that a large amount of T-bill issuance is not necessarily a reason for a broad risk off shift across markets on its own,” a team led by Winnie Cisar, global head of strategy (for CreditSights), wrote in a Wednesday client note. …
“In our view, broad market concerns about T-bill issuance are overblown,” Cisar’s team said, adding that the “upswing in supply,” by itself, isn’t enough for the team to change its constructive view on corporate credit.
For investors, the resolution of the debt-ceiling crisis should remove any apprehension about short-term Treasury bills, which are considered among the safest and most liquid investments in the world. Despite the recent volatility, yields on short-term T-bills remain quite attractive, beautifully shown in this chart:
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