International Demand Explodes for Short-Term US TreasuriesJune 06, 2023
Two weeks ago, we noted that Congress would soon raise the debt ceiling, but that this could set up unexpected consequences for investors. Now that that the debt ceiling is raised until 2025, the US Treasury is free to fund the government’s liabilities since January. On Monday it issued over $160B in new treasury notes, and it is expected to issue more in coming months than ever before. At yesterday’s auction, the highest bid yield rates on 3-month and 6-month notes were just over 5.2%. This could have the effect of drawing more money away from bank deposits given the fresh supply of higher yielding bonds or at least help money market accounts maintain their assets for longer.
Investors put worries about the possibility of a technical default aside and piled into newly issued 3- and 6-month US Treasury bills on Monday. Below we show the competitive bidding with bid/cover ratios over 3.0 for both issuances.
The highest proportion of bids (in green) were made by “Indirect Bidders,” typically foreign and international monetary authorities that bid through intermediaries. The 6-month auction saw a similarly high level of indirect bids.
There has been debate over the source of funds for new treasury purchases, which we tend to think may come at the expense of bank deposits. We’ll see this week in Thursday’s release of the H.4.1 report.