From Wolf Street, May 11:
Last time, $840 billion got sucked out in 5 months, all from excess cash in ON RRPs. But after $2.26 trillion of QT, ON RRPs are nearly gone.
Back on April 3, 2025, cash in the government’s checking account, the Treasury General Account (TGA) at the Federal Reserve Bank of New York, had plunged to $296 billion, from over $800 billion in mid-February. Then came the flood of tax receipts, and by April 16, the TGA balance had shot up to $639 billion, and by April 30, to $678 billion. Then, the balance began to decline again.
On May 8, the closing balance was already down by $100 billion, to $576 billion, according to the Treasury Department. The flood of tax receipts likely moved the out-of-money date into August. The balance of the TGA got pretty close to zero during the prior debt-ceiling farces, which is about when Congress agrees to lift/suspend the debt ceiling. The TGA is cash parked at the Fed and is a liability on the Fed’s balance sheet. Draining the TGA pulls that cash from the Fed and throws it into the markets. That’s what we’re seeing now.
But note what happened the last two times after the debt ceiling was lifted or suspended: the TGA balance exploded.
The balance in the TGA is determined by the cash inflow from issuance of Treasury debt and collections from taxes, fees, and tariffs, minus the cash outflow to pay for daily outlays and to pay off maturing Treasury securities. The daily inflows and outflows can be huge.
The desired level of cash in the TGA is $800 billion to accommodate those huge daily flows, according to the Treasury Department. Once the debt ceiling is lifted/suspended, the TGA will be refilled pronto.
In 2023, in the six weeks between June 1 and July 11, the government sucked $520 billion in liquidity back out of the financial markets to refill the TGA by issuing huge amounts of T-bills on top of the long-scheduled regular auctions. Then over the next 3.5 months, it sucked another $320 billion out of the markets, $840 billion in total in less than five months.
But back then, that cash came entirely out of the cash that money market funds had parked at the Fed via overnight reverse repos (ON RRPs). ON RRPs essentially represent cash that money market funds don’t know what to do with, and so they place it at the Fed and collect interest.
ON RRPs plunged by $1 trillion in less than five months as money-market funds bought the T-bills that the government issued and paid for them with the cash from unwinding their ON RRPs at the Fed.
Last time when the debt ceiling was suspended, on June 3, 2023, money market funds had $2.2 trillion in excess liquidity parked in ON RRPs at the Fed, some of which they deployed to buy those T-bills that the government issued to refill the TGA....
....MUCH MORE
