U.S. government to issue additional $450bn in Treasury bills in Q4, Barclays predicts

The U.S. government's borrowing is set to continue with an estimated issuance of an additional $450 billion in Treasury bills during the fourth quarter of 2023, as projected by Barclays (LON: BARC ) on Thursday. This forecast is based on the intent of the Treasury Department to end the year with a cash deposit of $750 billion at the Federal Reserve.

This upcoming wave of Treasury bills follows a period since June, during which money-market funds absorbed over $1.6 trillion in supply. Analysts predict that the incoming supply will be readily absorbed, given the record inflows into money-market funds this year. As of the start of September, government fund inflows have surged to nearly $4.7 billion out of a total asset pool of about $5.6 trillion.

The proportion of bills as part of outstanding government debt has increased to around 22.4% as of August, according to Barclays. This is the highest level seen since the beginning of the COVID-19 pandemic and exceeds the average range of 15%-20% observed since the 1980s. This surge in Treasury bill issuance began following the U.S. debt-ceiling deal in June.

Despite this increase, there has been no shortage of buyers at bill auctions. The yield on a 3-month Treasury bill reached a 22-year high of 5.46% on Thursday, indicating strong demand. Since June 1, demand for 3-month auctions has surpassed supply by approximately three times, while demand for 4-week, 8-week, and 6-month bill issuance has remained strong.

Barclays strategist Joseph Abate anticipates that this trend will continue, driven by expectations of a Federal Reserve rate hike in November and steady policy through September 2024. He also foresees sustained demand from money-market funds and individual investors who are willing to navigate the government’s TreasuryDirect website for yields around 5%.

In related financial news, stock markets showed upward momentum on Thursday, with the Dow Jones Industrial Average , the S&P 500 index , and the Nasdaq Composite Index all recording gains since Monday.

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