![]() ![]() They argue the Fed can address falling T-bill yields or overnight interbank rates by hiking the IOER - the interest it pays banks for holding reserves above the required minimum.Īnd if Congress does approve President Joe Biden’s $1.9 trillion spending plan, Treasury borrowing will rise again, easing the T-bill shortage. drawdown withdrawal As nouns the difference between drawdown and withdrawal is that drawdown is the act of reduction or depletion while withdrawal is receiving from someone's care what one has earlier entrusted to them. What matters for broader markets is QE and fiscal stimulus rather than growth in reserves.” The release of these funds is known as ‘drawdown’. ![]() Instead, they’ll release the funds to the seller on settlement day. TD Securities analysts agreed, noting: “Reserves themselves don’t translate to equities. If your home loan is approved, your lender won’t simply pay the cash straight into your bank account for a property purchase. JPM for instance, saw deposit inflows rise 35% year on year in the fourth quarter and fears being slapped with an increase in the minimum capital it’s required to hold as a globally systemic bank.īut JPM market strategists say overall liquidity won’t much be affected by adding another $1.1 trillion to a system flush with $3.2 trillion in reserves, with effects limited to money markets or short-dated debt. ![]() Negative yields could see cash flee money market funds for other assets - longer-dated bonds, equities, commodities and so on, further inflating bubble-like markets.Īnd if relative ‘real’, inflation-adjusted Treasury yields fall, it could weaken the dollar sharply - meaning that “at the global level the TGA effect will indeed prove highly significant”, King added.īanks too don’t always welcome huge reserves. One-year and six-month yields have halved since the end of 2020 to six basis points (bps) and four bps respectively - contrasting with rising 10- and 30-year borrowing costs. He noted a “surfeit of liquidity and a lack of places to put it - hence the rally in short-rates to almost zero, with the risk of their going negative and the complete lack of bids in recent New York Fed repo operations”. In short, the M2 money supply aggregate is growing at an annual 26% rate.Ĭiti’s global strategist Matt King reckons the rundown of the Treasury’s account will effectively triple the amount of bank reserves created by the Fed’s asset purchase scheme each month. ![]()
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