Barclays: The U.S. Treasury Bill Market can absorb larger amounts of government debt buybacks

On 27 August, Barclay stated that the United States Treasury bill market could absorb the impact of expanding bond buy-backs and that the cap on short-term debt issuance depended on the willingness of the United States Treasury to continue expanding the market. In a report, Barclay strategist Samuel Earl wrote: “The market has a very strong ability to absorb the issue of treasury bills.” He noted that “in July and August, the United States Treasury Department was expected to issue a net of about $500 billion in new treasury bills to the private sector, and that the market for treasury bills had hardly been affected.” Earl said: “Even if repurchases were financed by a permanent reduction in the Treasury's general account balance, the United States Treasury Department would not be able to avoid an increase in treasury bills held by the private sector.” He added that the decline in the Treasury's general account balance would increase bank reserves and that “the Fed is likely to offset the increase by reducing the RMP (reserve management purchase) demand for treasury bills”. Barclay stated that, rather than being “a rigid constraint on the expansion of repurchase plans”, the “actual limitation is the willingness of the United States Treasury Department to increase the proportion of treasury bills to the outstanding debt”. Earl states that if future treasury issue starts “disturbing the currency market”, “the Fed could well add RRP to offset this by absorbing the supply of treasury bills in the market”。