The U.S. government's borrowing activities are expected to continue at a robust pace, with an additional $450 billion projected to be issued in Treasury bills in the final quarter of 2023, according to Barclays strategist Joseph Abate. This projection is based on the Treasury Department's plans to end the year with $750 billion in cash deposited at the Federal Reserve.
This year has marked a significant increase in the issuance of Treasury bills, following an agreement on the U.S. debt ceiling in June. By August, bills constituted approximately 22.4% of the outstanding government debt, a level unseen since the COVID-19 crisis and surpassing the average range of 15%-20% that has been typical since the 1980s.
Despite this surge in issuance, there has been no shortage of buyers at bill auctions. The yield for a 3-month Treasury bill was near a 22-year high at 5.46% on Thursday, reflecting strong demand. Demand for these short-term government securities has consistently exceeded supply, with demand for 3-month auctions surpassing supply by about three times since June.
Money-market funds have played a pivotal role in absorbing this increased supply, recording record inflows this year. Government fund inflows have swelled to nearly $4.7 billion, contributing to total assets valued at approximately $5.6 trillion at the start of September.
Abate anticipates that this trend of high bill issuance and strong demand will persist. He predicts that the Federal Reserve will hike interest rates once more in November but will then hold its policy steady until September 2024. He also expects continued interest from money-market funds and individual investors who are willing to navigate the government's TreasuryDirect website for yields around 5%.
In related market news, stocks rose on Thursday, setting the Dow Jones Industrial Average on track for a 1% weekly increase. The S&P 500 index was up by 1%, and the Nasdaq Composite Index had risen by 1.2% since Monday.
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