{"id":134937,"date":"2025-09-11T10:03:07","date_gmt":"2025-09-11T10:03:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/134937\/"},"modified":"2025-09-11T10:03:07","modified_gmt":"2025-09-11T10:03:07","slug":"liquidity-warning-in-the-money-markets","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/134937\/","title":{"rendered":"Liquidity warning in the money markets"},"content":{"rendered":"<p>The Treasury has been relying on issuance of short-term T-bills to reduce the cost of servicing the government\u2019s growing public debt.<\/p>\n<p>With a debt of $37 trillion, the government will spend an estimated $950 billion in interest payments alone this year.<\/p>\n<p>Money market funds have so far been willing to absorb these short-term Treasury bills. But how long can that condition hold?<\/p>\n<p>As market players price in more rate cuts, demand for shorter-term paper will increase. Should that occur in the near term, the Treasury will have to step up its issuance of longer-term paper in which investors will demand a greater yield on top of a risk premium as the Fed cuts rates into rising inflation.<\/p>\n<p><a href=\"https:\/\/realeconomy.wpenginepowered.com\/wp-content\/uploads\/2025\/09\/9_11_2025_MM_1.jpg\" target=\"_blank\" rel=\"noopener nofollow\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-26867 size-mailchimp-images\" src=\"https:\/\/realeconomy.wpenginepowered.com\/wp-content\/uploads\/2025\/09\/9_11_2025_MM_1-560x341.jpg\" alt=\"\" width=\"560\" height=\"341\"  \/><\/a><\/p>\n<p>As indicated by the drawdown of capital by money market funds using the Federal Reserve\u2019s repo facility, investors would rather lock in the return of a 3.85% Treasury bill for six months than risk the return on overnight rates expected to drop if and when the Federal Reserve begins to cut its policy rate.<\/p>\n<p><a href=\"https:\/\/realeconomy.wpenginepowered.com\/wp-content\/uploads\/2025\/09\/9_11_2025_MM_2.jpg\" target=\"_blank\" rel=\"noopener nofollow\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-26868 size-mailchimp-images\" src=\"https:\/\/realeconomy.wpenginepowered.com\/wp-content\/uploads\/2025\/09\/9_11_2025_MM_2-560x342.jpg\" alt=\"\" width=\"560\" height=\"342\"  \/><\/a><\/p>\n<p>Use of the facility ensures liquidity in the money markets and adequate reserves in the banking system. The difficulty for the Federal Reserve comes with the draining of the facility.<\/p>\n<p>In addition, if the markets become overloaded with short-term exposure, the Treasury will be forced to return to relying on issuance of longer-term securities.<\/p>\n","protected":false},"excerpt":{"rendered":"The Treasury has been relying on issuance of short-term T-bills to reduce the cost of servicing the government\u2019s&hellip;\n","protected":false},"author":2,"featured_media":134938,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[12],"tags":[64,63,99,171],"class_list":["post-134937","post","type-post","status-publish","format-standard","has-post-thumbnail","category-markets","tag-au","tag-australia","tag-business","tag-markets"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/134937","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=134937"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/134937\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/134938"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=134937"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=134937"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=134937"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}