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Tidal Wave of Treasury Bills: Will $1.6 Trillion Impact Markets in 2023?

With the US debt limit temporarily lifted, the Treasury Department is about to set sail on an ocean of borrowing in an attempt to refill its coffers. The recent congressional approval of a debt ceiling bill, signed into law by the President, sets the stage for an anticipated flood of Treasury bills (T-bills) that analysts believe could reshape the financial landscape in 2023.

According to Deutsche Bank, we’re likely to see the issuance of around $1.3 trillion in T-bills for the remainder of this year, nudging the annual total to a staggering $1.6 trillion. As the Treasury General Account (TGA) descends to what analysts describe as a worryingly low level, we’re about to witness one of the largest rebuilds in the history of debt limits.

Prior to the debt ceiling bill becoming law, the TGA’s cash balance plummeted to $23.4 billion, a considerable reduction from the $140 billion seen in mid-May. In order to stay afloat and meet the government’s financial obligations, the Treasury has been deploying ‘extraordinary measures,’ which essentially amount to financial wizardry.

The upcoming summer season could see the cumulative issuance reach an astounding $800 billion between June and August. This figure surpasses the market’s median estimates of its capacity to absorb bill supply over such a short period. By September, analysts predict that the Treasury Department will have managed to bolster its cash balance to around $600 billion.

Already, the Treasury is showing signs of stirring. Earlier this week, it issued one-day cash management bills which matured on Tuesday. Further, it announced plans to offer $65 billion in three-month bills and $58 billion in six-month bills, which are expected to settle by the end of this week.

However, this abundance of T-bills is not without its potential side effects. Their issuance is poised to absorb a significant amount of liquidity from the financial system, which could exert pressure on markets. JPMorgan analysts warn that the dual force of this debt issuance and the Federal Reserve’s quantitative tightening could erode the combined performance of stocks and bonds by nearly 5% this year.

As we navigate the rest of 2023, the specter of this tidal wave of T-bills looms large. As entrepreneurs, investors, and spectators alike, it’s time to brace ourselves for the impact of this $1.6 trillion surge.