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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David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. I Bonds and TIPS are not “get rich” investments; they are best used for capital preservation and inflation protection. They can be purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.
Treasury Inflation-Protected Securities 
Yields on long and short term TIPS have also risen quite a bit in the past month and are now near their highs for the year, even though a few months ago some people thought the peak might have already passed. Any thoughts about why rates have gone up again and if this is likely to continue? Thanks.
This has been interesting to watch. Real yields are now fairly close to where they started 2023, but still a bit below the highs of late October and early November 2022. It could be investors are seeing that the U.S. economy isn’t about to fall off a cliff — jobs and corporate profits still seem strong. That could mean more Fed rate hikes ahead.
Hope the 4 week yield holds up, big reinvestment at today’s auction.
it came out at 5.195% or 4 basis points below the last week 4 week bill. I would call that holding up, but far from the one that was auctioned on the 25th that came out at 5.872 or 68 basis points higher.
Thanks bruh!
If the supply of Tbills increases, doesn’t that mean their prices have to fall increasing yields? I mean retail investors are not gonna move the market but anyone buying in size wouldn’t demand a better yield? Something smells fishy here.
Logically, yes, but probably not because the looming debt ceiling was suppressing new T-bill issuance. These are trading constantly in secondary markets, so the market yield is known, and the demand will probably be high enough to keep yields at current levels. That’s a guess.
The answer to your first question would be yes IF everything else remained exactly the same and increased supply was the only thing that was changing. But there are lots of different factors that affect demand and they are constantly changing as well. For example, now that the threat of default has been removed for the next 2 years investors may be more inclined to buy short term treasuries, which would increase demand. No need to assume something fishy or shady is going on.
Well yes, clearly there are lots of forces at work that influence the bond market. In fact, it would seem to me that selling a bunch of significantly higher rate bonds at the short maturity curve will increase total borrowing costs for the government and the fact that there is NO DEBT CEILING for the next two years could INCREASE the future risk of default. That would raise rates out on the yield curve, right? So who knows.
This lunacy will eventually blow up. As Margaret Thatcher said, “The problem with socialism is that you eventually run out of other people’s money.”
As of now, CME Fed Watch has 66.2% probability of no increase and 50.3% probability of July increase; these numbers can change quickly. I too believe no increase next Wednesday, if the CPI comes in way hotter than expectations, not sure if FOMC will have enough time to react on the June decision but will certainly make the July increase more probable.
Inspite of increased Treasuries supply, the short-term rates, so far, have not gone up. In the heat of the debt-ceiling debate I bought 4 week Treasury auction at the rate of 5.81%; as of now, on WSJ bond market data, it shows 4.938%. So much for increased supply. Obviously other factors such as lower economic numbers, etc. are more dominant.
I never worried about the debt problem. Maybe I should have.
It will be interesting to watch T-bills over the next month. Today’s 17-week T-bill had pretty good demand, $155 billion tendered for $46 billion accepted with an investment rate of 5.379%. The numbers for last week were $132 billion tendered, $43 billion accepted, with an investment rate of 5.511%.
I see Australia and Canada have resumed raising after their “pause”. I would be surprised if the Fed pauses next week, but anything is possible.
I think the Fed almost has to pause since it signaled a pause. But it can also note it plans to “watch the data” and future interest rate increases are a possibility. Next week’s inflation report (Tuesday) could be the kicker, coming one day before the Fed announcement.
This is non scientific, but it feels like to me that inflation is up. The gas price drop has reached the floor and appear to be drifting up and there was the Saudi announcement. Food prices seem to be tending higher too.
Inflation never came down as much as many seem to think. You have to go back to 1989 to see core inflation as high as it has been for the last 6 months on a month to month basis. And in 1989, the 10Y yield was between 7% and 9% while Fed rate was ramped from 5.85% to 9.85%.
Many are so used to ZIRP they have difficulty with higher rates. This is why we hear every month the chants for “pause”, “pivot”, and “cut”.
From 1971 to 2022, the average federal funds rate was 4.86% (with admittedly much variation). This is not much different from where we are now. The average 30-year fixed rate mortgage 1971 to 2022 was 7.76%, higher than what we see today.
So it is no surprise to me the economy is humming along nicely with fairly strong employment. Inflation is the big problem. Powell has moved too slowly, and I think he is beginning to realize it. If he pauses next week, he will begin to be seen as a tool of Wall Street, and his previous hikes will be in vain. The wage-price spiral will get out of hand, and we will eventually end up with Volcker level fed funds rates (around 15%). Higher, longer.