Treasury Bill Supply Cuts Loom as U.S. Debt Ceiling Set to Return

(Bloomberg) -- The U.S. Treasury is facing growing pressure to slash its bill supply to meet a debt ceiling target poised to be reinstated at the end of the month.

The potential return of the debt limit, last suspended in 2019, will force the department to cut its cash balance to around $450 billion by the end of July, from more than $700 billion on June 29. That means cutbacks in bill offerings to help draw down the balance. But after announcing plans to keep sales unchanged next week, the Treasury will only have three weeks left to rein in supply.

The reinstatement of the federal debt ceiling at the end of July also means the mismatch between low supply of short-term securities and surging demand could get a lot worse. The ongoing imbalance in the front-end has been fueled in part by the Federal Reserve’s bond-buying program and the federal government’s fiscal stimulus.

The resulting surfeit of cash in money-market funds has held rates on short-term instruments ranging from bills to repurchase agreements near or below zero since the beginning of the year, and pushed demand at the Fed’s reverse repo facility close to $1 trillion.

Read more: Congress Lacks Clear Plan to Raise Debt Limit Ahead of Deadline

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