T-Bill Issuance Surges to $90B, Draining Market Liquidity

The Treasury is set to issue $90 billion in net new T-bills this week, extending a liquidity drain that began in early July. That is a sharp increase from the $65 billion issued last week, according to a note from analyst Michael Kramer at Mott Capital Management.

The surge in short-term government debt absorbs cash from the financial system. Banks and money market funds that buy the bills must draw down reserves or sell other assets. The effect is a tightening of liquidity conditions.

Kramer pointed to the risk this poses for risk assets. When liquidity drains, stocks and bonds often face headwinds. The pullback in July coincided with the start of the T-bill ramp-up.

The Fed's reverse repo facility stood at $300 billion as of Friday, down from $1 trillion a year ago. That balance provides a measure of buffer capacity for absorbing the new supply.