What will happen to the U.S. debt market once active offerings begin in June 2023?
Placements totaled 2.5 trillion, according to the U.S. Treasury's calculations based on U.S. Treasury data.
In the history of the U.S. Treasury Department, there has never been a more active period of seasonally adjusted borrowing from June of the previous year through February of the year under review.
Market Dynamics
During the same period, 1.070 trillion was borrowed in 2023, 1.660 trillion in 2022, 1.928 trillion in 2021, 1.042 trillion in 2020, and about 1 trillion in the 2009 - 2010 crisis.
So taking 2.5 trillion out of the market in 9 months is a serious burden, but not a record.
In terms of the sum over 12 months, the maximum of placements was on February 10, 2021 - 4.4 trillion, but such a dollar vacuum was blocked by the Fed's monetary madness in the terminal stage when the Fed "threw" to the market 3.4 trillion over 12 months, that is, the borrowing of the U.S. Ministry of Finance adjusted for the operations of the Fed gave minus 1 trillion (3.4 - 4.4).
Structure of Offerings
What is the structure of the 2.5 trillion offerings since June 2023?
- From June 1, 2023, to February 29, 2024, 17.1 trillion in notes were placed with 15.06 trillion maturing.
- Bonds (2 to 10 years inclusive) were placed for only 120 billion where gross placement was 2.43 trillion, and redemption was 2.31 trillion.
- Bonds (10 years and above) posted 323 billion where gross allocation was 346 billion, and redemption was 23 billion.
- Inflation-linked bonds are placed at 32 billion.
80% of placements were in bills, which were almost entirely covered by reverse repo resources (down from 2.4 trillion to 0.4 trillion).
Conclusion
When active offerings begin in June 2023, the U.S. debt market will have undergone a significant transformation, with offerings totaling 2.5 trillion. The predominance of short-term bills, which account for 80% of offerings, indicates a reliance on short-term borrowing, much of which is covered by reverse repo resources. This, combined with the reduction in market liquidity due to the Federal Reserve's actions, points to a potential strain on the financial system. Close monitoring and management will be necessary to overcome these challenges and maintain market stability.