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Fed's Stealth Liquidity Is Fueling A Stock Market Rally | Michael Howell
On The Margin
US Treasury Shifts Funding Strategy and Increases Liquidity in Markets
The US Treasury surprised with a significant increase in bill issuance and a decrease in coupon issuance for Q4 and Q1, resulting in 72% of total funding being provided by bills. This strategic move does not strain liquidity markets as bills are equivalent to government borrowing from banks. Additionally, in an effort to increase liquidity, the Treasury is engineering a rundown of the reverse repo facility at the Federal Reserve, leading to a notable decrease in the facility's size. By targeting money funds with bills at specific tenors, the Treasury encourages the preference for Treasury bills over holding money in the Fed overnight. These actions inject approximately $75 billion into markets, aiding in a more liquid system amidst a deteriorating fiscal situation in the US over the medium term.
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