US treasury aims to add $350 billion cash by month end amid default
The new cash balance target is about $125 billion short of the $550 billion balance it had projected for the end of June on May 1.
The US Treasury on Wednesday said it aims to ramp up T-bill issuance to rebuild its cash balance depleted during the debt ceiling stand off, aiming to add roughly $350 billion to its cash on hand by the end of June.
After months of using extraordinary measures to fund the government after hitting the $31.4 trillion statutory debt limit earlier this year, the recent deal between the White House and Congress to suspend the cap until Jan. 1, 2025, allows Treasury to rebuild an operating account that had been run down to near record lows last week.
As of Monday, Treasury had $71.2 billion on deposit in its account at the Federal Reserve - the Treasury General Account. The account had fallen to below $23 billion on June 1 before the bi-partisan deal to lift the ceiling was signed on Saturday by President Joe Biden, averting a first-ever US default.
Treasury said in a statement it is targeting an end-of-June cash balance at the Fed of about $425 billion as part of a plan "to gradually rebuild the cash balance over time to a level more consistent with Treasury’s cash balance policy."
To meet that target, Treasury would need to add roughly $350 billion to the TGA over the coming three weeks or so, which would mark one of the largest cash rebuilds it has undertaken under such a short horizon. It will do that by increasing bill supply and expects an influx of quarterly tax receipts beginning June 15.
The new cash balance target is about $125 billion short of the $550 billion balance it had projected for the end of June in its borrowing estimates issued on May 1. But with the debt ceiling now dealt with, it does expect to achieve its end-of-September target of $600 billion.
Market participants have been waiting for Treasury's plan. The rapid rebuild of cash has implications for overall market liquidity because of the rush of new debt issuance. Also, to entice investors to absorb it all, Treasury is likely to see continued high interest rates on new issuance, which could force banks to raise deposit rates to avoid further loss of deposits that have been pressured by the recent bank failures.
It also could put downward pressure on other liabilities - such as bank reserve balances - deposited at the Fed.
The Fed is draining cash from the financial system through its quantitative tightening program, allowing $95 billion a month of assets - Treasuries and mortgage bonds - to mature from its balance sheet. That must be met with a comparable decline in liabilities, so as the TGA grows, another of those will have to decline, likely either bank reserves or overnight-reverse repurchase agreements.
