{"id":6503,"date":"2023-10-28T19:57:58","date_gmt":"2023-10-28T19:57:58","guid":{"rendered":"https:\/\/infundpros.com\/markets\/a-major-source-of-liquidity-for-buying-u-s-government-debt-is-draining-heres-why-thats-bad-news-for-the-fed-and-the-market\/"},"modified":"2023-10-28T19:57:59","modified_gmt":"2023-10-28T19:57:59","slug":"a-major-source-of-liquidity-for-buying-u-s-government-debt-is-draining-heres-why-thats-bad-news-for-the-fed-and-the-market","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=6503","title":{"rendered":"A major source of liquidity for buying U.S. government debt is draining. Here\u2019s why that\u2019s bad news for the Fed and the market."},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0002666303\" role=\"document\">\n<p>A Federal Reserve repo facility is back in focus as a gauge of liquidity as U.S. stocks stumble and investors brace for another barrage of Treasury borrowing to fund the U.S. government\u2019s large budget deficit.<\/p>\n<p>Funds parked by institutional investors short-term at the New York Fed\u2019s overnight reverse repo facility have dropped to $1.1 trillion from a peak of about $2.5 trillion in December, according to Fed data.<\/p>\n<div class=\"paywall\">\n<div data-layout=\"inline\n                \" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetMediaIllustration\n            inline\n  article__inset\n          article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<p>          <!-- eventually when we know what this card will be we can change it and leave this one --><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        img-inline\n        article__inset__image\n      \" itemscope=\"\" itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<\/figure><\/div>\n<p>It signals that a major source of cash waiting on the sidelines to deploy to buy Treasury debt or other cash-like investments over the past two years has dramatically dwindled.<\/p>\n<p>The retreat also comes as the S&amp;P 500 index<br \/>\n        SPX<br \/>\n       was on pace to log a close in correction territory Friday, with any finish below 4,130.06<strong> <\/strong>marking a slump of at least 10% from its recent closing high of 4,588.96 set on July, according to FactSet. The Nasdaq Composite Index<br \/>\n        COMP<br \/>\n       logged its 70th correction earlier this week.<\/p>\n<p>While funds parked overnight at the Fed have been earning 5.3%, recently, the volume of cash has decreased sharply since the Treasury began stepping up debt issuance to fund a\u00a0large federal budget deficit. For fiscal year 2023 it was pegged at $1.7 trillion, up 23%, from a year ago.  <\/p>\n<p>\u201cI\u2019ve been tracking the volume and size of the Fed reverse repo facility,\u201d said Bryce Doty, a senior portfolio manager at Sit Investment Association in Minneapolis. \u201cIt isn\u2019t a perfect measure of liquidity,\u201d he said, but worth watching as the Treasury prepares next week to announce its coming borrowing needs.<\/p>\n<p><strong>Read:<\/strong> Wall Street braces for roughly $1.5 trillion in further borrowing needs by Treasury<\/p>\n<p>The Fed also is widely expected on Wednesday to hold its policy interest rate steady at a 22-year high in the 5.25%-5.5% range.<\/p>\n<p>Doty said the roughly $1 trillion cash pile in the Fed\u2019s repo facility was still a huge amount. \u201cBut what happens if that gets tapped out?\u201d<\/p>\n<p>U.S. stocks and bonds have been volatile in the second half of this year as the Fed bolstered its message that interest rates likely need to stay higher for longer to keep falling inflation heading back toward its 2% annual target.<\/p>\n<p>The Fed\u2019s preferred inflation tracker, the personal-consumption expenditures price index for September, registered on Friday at\u00a03.4% over the past year, unchanged from the prior month.  <\/p>\n<p>Stocks were mostly lower Friday, heading for sharp weekly losses, with the Dow Jones Industrial Average<br \/>\n        DJIA<br \/>\n       on pace for a 2.2% weekly drop, the S&amp;P 500 index<br \/>\n        SPX<br \/>\n       off 2.8% and the Nasdaq Composite Index down 2.9% for the week, according to FactSet.<\/p>\n<p>Weekly losses for the S&amp;P 500\u2019s communications services sector were on pace to top 6%, underscoring the sharp selloff in shares of several big technology companies. Its energy component also was down about 6%, according to FactSet. <\/p>\n<p>Bond yields were mostly rising too, with the benchmark 10-year Treasury<br \/>\n        BX:TMUBMUSD10Y<br \/>\n       yield steady at 4.84% Friday, after recently topping 5%, the highest since 2007.<\/p>\n<p><em>\u2013Greg Robb contributed reporting<\/em><\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/story\/a-major-source-of-liquidity-for-buying-u-s-government-debt-is-draining-heres-why-thats-bad-news-for-the-fed-and-the-markets-8760cb7a?mod=markets\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A Federal Reserve repo facility is back in focus as a gauge of liquidity as U.S. stocks stumble and investors brace for&#8230;<\/p>\n","protected":false},"author":1,"featured_media":6504,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25],"tags":[],"class_list":{"0":"post-6503","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>A major source of liquidity for buying U.S. government debt is draining. 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