The Treasury will need to rebuild its liquidity after the debt ceiling is lifted, Goldman Sachs said.
It can sell up to $700 billion in Treasuries to replenish its coffers within six to eight weeks of a debt deal.
This could drain liquidity from the markets in a short time.
The Treasury Department will issue between $600 billion and $700 billion in Treasuries within weeks of lawmakers agreeing to lift the debt ceiling, Goldman Sachs estimated.
President Joe Biden and Republicans in Congress have yet to reach an agreement, but Treasury Secretary Janet Yellen reiterated it warning that the government will run out of money on June 1.
house tenant Kevin McCarthy indicated on Monday ahead of his meeting with Biden that a deal could be reached before the June deadline.
Once a settlement is reached, as is commonly expected, Goldman expects the Treasury to flood the market with Treasuries, restoring its cash balance to $550 billion within six to eight weeks. following the transaction.
Friday, the Treasury General Account was $60.7 billion, down from $140 billion the previous week.
Overall, Goldman expects the Treasury to supply the market with more than $1 trillion of Treasuries on a net basis this year.
This will remove liquidity from the financial markets. In a separate note, Bank of America analysts recently said it would have the same impact on the economy as a 25 basis point Federal Reserve rate hike.
It comes as the banking sector still grapples with the fallout from the collapse of Silicon Valley Bank, which led to deposits fleeing regional banks. Meanwhile, more than a year of Fed rate hikes has also drawn money into bank accounts and higher-yielding money market funds.
Goldman estimated that bank reserves would fall by $400 billion to $500 billion due to the Treasury rebuilding its cash balance, continued deposit outflows and continued Fed action. quantitative tightening program.
Read the original article at Business Intern