EC Just Who Is, And Who Is Not, Selling T-Bills

The reason for this change is standard debt management practice. Whenever a government is confronted by an unexpected and unexpectedly large fiscal shortfall, as in April 2020 due to the CARES Act made law at the end of March, the immediate debt needs are filled by the issuance of short-term securities. In years past, that had meant securities of indebtedness along with straight bills.

Whatever shortage in bills as the collateral bottleneck became all-too-real, as we had been warning for years before then, once more by accident Uncle Sam (partly) filled a huge need. The market was flooded with brand-new OTR paper by the hundreds of billions – and the Fed, for reasons it won’t and can’t adequately explain, stayed the hell out of the way this time (massive QE from March forward focused on OFR on purpose; hardly any bills were bought).

Prudent debt management, however, demands that over time borrowing maturities shift and get termed out. Rather than rollover short-term debt at huge amounts forever, as the months go by and longer-term security auctions aren’t overwhelmed (they never are), Treasury starts to sell more and more notes and bonds on purpose leaving fewer bills that need to be continuously rolled.

That’s exactly what the government has been doing since late June; fewer bills, lots more notes, and now a few more bonds.

By the end of July, there were significantly fewer 4-week and 8-week bills being sold off, while only slightly fewer in 3-, 6-, and 12-month maturities. What that would’ve meant as far as TIC and foreign holdings of bills, 4-week bills auctioned at the top in June started to come due in July and were not rolled over at the same par levels (therefore, “selling” bills in July may have been instead “maturing”).

Eight-week bills at the peak end of June began to expire at the end of August, meaning for the month of September the last big flood of 2m had come due and wasn’t replaced because it couldn’t have been by Treasury’s choice.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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William K. 3 months ago Member's comment

What it all looks like is piling up debt that will need to be paid eventually. And when "eventually " arrives it will no longer be a free party. Of course it is quite likely that the ones to be saddled with this huge debt are not even born yet, and this not likely to benefit from it at all. It is even possible that they will realize this and become upset and unhappy.

So exactly WHO is getting the benefit from the debt being created?I can guess that it is not me. In fact, I am certain that it is not me.

Ayelet Wolf 3 months ago Member's comment

Well said William!

William K. 3 months ago Member's comment

Some times it does not feel at all good to be correct. On occasions like this it would be comforting to have some very informed and wise individual show that I was totally wrong. So I do wonder about why those more in a position to steer things do not steer in a different direction, and why they did not steer in a different direction previously. It can not be that everybody else is blind, can it???