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Who will buy the deluge of T-bill?

10 Jun 2023
During the past weekend, President Biden signed a bill pertaining to the federal government's debt ceiling and budget, resulting in a temporary suspension of the debt ceiling until early 2025, accompanied by spending restrictions for the fiscal years 2024 and 2025. At first glance, it may give the impression that the US debt ceiling crisis has been resolved. However, the temporary suspension fails to address the underlying causes of the US debt issue (for a comprehensive analysis of the root causes, please refer to "What is the risk of the United States ?"). In the short term, a concealed concern arises as the United States is expected to issue approximately $1 trillion in Treasury bills(T-bill) in the forthcoming months, equivalent to approximately 5% of the US GDP. So, who will foot the bill for these short-term debts? And what kind of impact will it have on market liquidity? The estimation of "1 trillion US dollars" is derived from various factors, including the Federal Reserve's monthly reduction of $60 billion in Treasury securities through its balance sheet shrinking program, fiscal deficits amounting to approximately $100 billion per month, and the maturity of upcoming short-term notes. In reality, the accumulated fiscal deficit for the first five months has already surpassed $900 billion, indicating that issuing $1 trillion in new short-term notes is a relatively conservative estimate. The impact of this $1 trillion new debt on market liquidity predominantly hinges on the entities that will ultimately acquire these short-term notes. Will it be foreign investors, banks, and financial institutions, domestic non-financial institutions, other investors, or perhaps the Federal Reserve itself?

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