Treasury Borrowing Could Absorb Crypto Liquidity
The US Treasury plans to issue $739 billion in new debt between July and September. This is in addition to another $628 billion of borrowing from October through December, bringing the total projected borrowing for the year to $1.367 trillion. The increased borrowing will provide liquidity to investors who hold older bonds that are no longer benchmark issues, allowing them to sell their securities without having to wait for a new auction.
The Treasury has been buying back selected older bonds through its buyback program, which is designed to manage the government's cash balance and retire certain old issues. The program allows dealers and other holders of off-the-run supply to sell their securities at regular auctions, reducing trading frictions and making it easier for them to access liquidity.
The Treasury has also been selling new bonds to fund its borrowing needs and maintain its cash balance. New bonds are sold through regular auctions, which establish the market-clearing yield and price. The newest security in a maturity bucket becomes the benchmark issue, trading more frequently and at tighter bid-ask spreads than comparable older bonds.
The buyback program has been expanded to allow for larger purchases of $4 billion or more for operations from September 9 through November 4. This will provide additional liquidity to investors who hold off-the-run supply and help to reduce fragmented supply in the market.