The U.S. Treasury Department is poised to expand its issuance of short-term bills due to burgeoning demand from key investor groups, as noted by JPMorgan Chase & Co. on June 3, 2024. This move aligns with regulatory changes and strategic shifts among prominent investors.
Markets will have no issues digesting the additional T-bill supply, with demand remaining robust,”
said JPMorgan strategist Teresa Ho Money-market funds, the leading purchasers of Treasury bills, are facing new regulations that could amplify their demand. Additionally, the Federal Reserve aims to increase its holdings of short-term debt, and stablecoin issuers and Berkshire Hathaway are expected to significantly boost their bill investments.
JPMorgan strategists predict that the U.S. deficit’s persistence will necessitate higher borrowing, likely increasing the Treasury’s reliance on short-term bills. This trend is set to persist through 2026, with the share of Treasury bills in the total debt market anticipated to exceed 20%.
Money-market funds, which held 35% of the bill market by March, are expected to further increase their stake due to regulatory reforms and anticipated interest rate cuts by the Federal Reserve. The central bank, holding 3% of the bill market, could also boost its investments by reinvesting maturing mortgage-backed securities into bills, potentially adding $180 billion to its holdings.
Stablecoin issuers, currently owning only 1% of the market, could see their share grow substantially if supportive legislation is enacted. This would ensure stablecoins are backed by high-quality liquid assets like Treasury bills. Berkshire Hathaway, which increased its Treasury bill holdings to $158 billion, might further expand its investments to $200 billion by the end of the second quarter, driven by attractive cash yields and a lack of other investment opportunities.
When we look at the buyer base of the T-bill market, we see demand from several key buyers remaining substantial, if not expanding in the near term,”
noted JPMorgan Despite these increases, JPMorgan assures that the market will comfortably absorb the additional supply of Treasury bills, supported by robust and expanding demand from key buyer segments.
Summary: The U.S. Treasury is set to boost short-term bill issuance, responding to increased demand from money-market funds, the Federal Reserve, stablecoin issuers, and Berkshire Hathaway. This trend is expected to continue, ensuring the market can absorb the additional supply.
