As a result, government MMFs have turned to the RRP facility as a supply backstop. The drawdown in the TGA has coincided with an 822bn decline in net T-bill issuance 4, most of which were held in government MMFs. They argue the Fed can address falling T-bill yields or overnight interbank rates by hiking the IOER - the interest it pays banks for holding reserves above the required minimum.Īnd if Congress does approve President Joe Biden’s $1.9 trillion spending plan, Treasury borrowing will rise again, easing the T-bill shortage. As we outlined, the Treasury has not been issuing short-term bonds because it’s been funding its spending through TGA drawdown. What matters for broader markets is QE and fiscal stimulus rather than growth in reserves.” TD Securities analysts agreed, noting: “Reserves themselves don’t translate to equities. JPM for instance, saw deposit inflows rise 35% year on year in the fourth quarter and fears being slapped with an increase in the minimum capital it’s required to hold as a globally systemic bank.īut JPM market strategists say overall liquidity won’t much be affected by adding another $1.1 trillion to a system flush with $3.2 trillion in reserves, with effects limited to money markets or short-dated debt. The TGA Network is a group of commercial financial institutions that receive and reconcile over-the-counter (OTC) government agency cash and check deposits. Negative yields could see cash flee money market funds for other assets - longer-dated bonds, equities, commodities and so on, further inflating bubble-like markets.Īnd if relative ‘real’, inflation-adjusted Treasury yields fall, it could weaken the dollar sharply - meaning that “at the global level the TGA effect will indeed prove highly significant”, King added.īanks too don’t always welcome huge reserves. are based on how there will be less monetary/more fiscal spending, how the TGA will be drawn down and therefore consequences, bla bla bla. 17.10 for hx 0.9 H1: x eff tga 1 H 1 lnH01.1HH. Fiscal spending / TGA drawdown Post by ertyu Thu 7:30 pm LIterally all macro takes i seem to hear recently in podcasts etc. One-year and six-month yields have halved since the end of 2020 to six basis points (bps) and four bps respectively - contrasting with rising 10- and 30-year borrowing costs. drawdown is at least 10, the upslope extent of this zone (xeff) may be found by solving Eq. He noted a “surfeit of liquidity and a lack of places to put it - hence the rally in short-rates to almost zero, with the risk of their going negative and the complete lack of bids in recent New York Fed repo operations”. In short, the M2 money supply aggregate is growing at an annual 26% rate.Ĭiti’s global strategist Matt King reckons the rundown of the Treasury’s account will effectively triple the amount of bank reserves created by the Fed’s asset purchase scheme each month.