{"id":19854,"date":"2023-06-08T06:17:37","date_gmt":"2023-06-08T10:17:37","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/a-deluge-of-treasury-bill-issuance-is-coming-how-it-could-impact-stocks-and-the-broader-market\/"},"modified":"2023-06-08T06:17:38","modified_gmt":"2023-06-08T10:17:38","slug":"a-deluge-of-treasury-bill-issuance-is-coming-how-it-could-impact-stocks-and-the-broader-market","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=19854","title":{"rendered":"A deluge of Treasury bill issuance is coming. How it could impact stocks and the broader market"},"content":{"rendered":"
\n

Investors are bracing for an estimated $1 trillion deluge of Treasury issuance to start flowing later this week and continue in the coming months as part of the latest debt-ceiling resolution.<\/p>\n

Heavy supply of fresh Treasury debt will refill government coffers run low by another protracted fight in Washington over the U.S. borrowing limit. But it won\u2019t necessarily derail stocks, or the broader market, according to strategists.<\/p>\n

\n

A CreditSights team found that the S&P 500 index
\n SPX,
\n -0.38%<\/bg-quote>
\n rose almost 5% over a six-month stretch in 2016 and 2018 (see chart), when a wave of Treasury supply hit the market.<\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

\u201cOur 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,\u201d a team led by Winnie Cisar, global head of strategy, wrote in a Wednesday client note. Bills are Treasury debt that mature in four to 52 weeks.<\/p>\n

\u201cIn our view, broad market concerns about T-bill issuance are overblown,\u201d Cisar\u2019s team said, adding that the \u201cupswing in supply,\u201d by itself, isn\u2019t enough for the team to change its constructive view on corporate credit.<\/p>\n

Credit markets provide a key source of liquidity to major corporations, but also households and landlords though the issuance of bonds that price at a premium to Treasury yields. The Federal Reserve\u2019s sharp pace of rate hikes has pushed yields on Treasury securities and the broader bond market to some of their highest levels outside of major crises. <\/p>\n

Investors have been worried about the impact of sharply higher rates on the economy and on markets broadly. Focus is on whether the Fed will pause or skip another rate hike at its June 13-14 policy meeting, to give more time for its prior 500 basis points of rate increases more time to sink in.<\/p>\n

See:<\/strong> A Fed skip? A pause? Even so, investors aren\u2019t likely out of the woods.<\/p>\n

Let the deluge begin!<\/h2>\n

The Treasury Department on Wednesday said it plans to increase its cash balance by about $400 billion in June, including through heavy short-term Treasury bill issuance.<\/p>\n

That was slightly below the $550 billion Treasury target expected by Barclays interest-rate strategist Joseph Abate. <\/p>\n

\u201cHowever, the Treasury expects the balance to return to a level \u2018consistent\u2019 with\u00a0its\u00a0normal cash management policy by end-September. We interpret this to mean that the September 30 balance will be about $650bn or around a week\u2019s expected cash outflows.\u201d Abate wrote, in a Wednesday client note.<\/p>\n

To that end, the Treasury plans to kick off a series of six-week Treasury bill auctions starting on Thursday. \u201cThe decision to concentrate issuance at the very front end of the bill curve acknowledges\u00a0money-fund demand and recognizes the effect that restocking its cash balance could have on bank reserves,\u201d Abate said.<\/p>\n

He expects \u201cperhaps all\u201d of the $400 billion \u201ccash balance restocking\u201d of T-bill issuance to be snapped up users of the Fed\u2019s reverse repo facility, which has been popular with money-market funds.<\/p>\n

The bottom line is, \u201cas long as U.S. Treasury securities are regarded as risk-free securities, there is always going to be demand for T-bills,\u201d said Lawrence Gillum, chief fixed-income strategists at LPL Financial, in emailed comments. <\/p>\n

\u201cIn our view, there is always going to be an abundance of liquidity in the market that can be used to absorb the glut of issuance coming to market in the next few quarters without a disruption to prices or liquidity.\u201d <\/p>\n

See<\/strong>: Money-market funds own only 15% of the Treasury bill market, but that could change dramatically once Congress passes a debt ceiling deal<\/p>\n

Stocks closed mixed on Wednesday, with the Dow Jones Industrial Average
\n DJIA,
\n +0.27%<\/bg-quote>
\n up 0.3%, the S&P 500 index
\n SPX,
\n -0.38%<\/bg-quote>
\n down 0.4% and the Nasdaq Composite Index
\n COMP,
\n -1.29%<\/bg-quote>
\n ending 1.3% lower, a day after closing at its highest level in 14 months.<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Investors are bracing for an estimated $1 trillion deluge of Treasury issuance to start flowing later this week and continue in the coming months as part of the latest debt-ceiling resolution. Heavy supply of fresh Treasury debt will refill government coffers run low by another protracted fight in Washington over the U.S. borrowing limit. But […]<\/p>\n","protected":false},"author":1,"featured_media":19855,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-19854","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nA deluge of Treasury bill issuance is coming. 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