Edward Conard

Top Ten New York Times Bestselling Author

  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

AI Summary. The supply of short-term US Treasury bills has risen by $2tn over 12 months, and bills have grown as a share of total debt outstanding. Absorbing this supply requires continued demand from banks, money market funds, and households, and falling appetite could push short-term rates higher and raise the risk of funding-market strains.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk notes the increase in T-bills’ share of outstanding Treasury debt may be a problem if September rate cuts lead to a “lower appetite for T-bills from households and money market funds.”

Does rapidly rising short-term Treasury supply threaten funding markets?

Core argument: The supply of Treasury bills has risen by $2 trillion over the past 12 months, with T-bills also rising significantly as a share of total debt outstanding.

The supply of T-bills has increased by $2 trillion over the past 12 months, and the share of T-bills outstanding as a share of total debt outstanding has trended significantly higher over the same period. Why is the rapid growth in the supply of T-bills a problem? Because a big increase in supply requires a big increase in demand. Growing the amount of T-bills outstanding while the Fed at the same time is doing QT increases the risk of an accident in funding markets, which is what we saw in repo markets in September 2019. In other words, the strong growth in the supply of T-bills will require a continued increase in demand from banks, money market funds, and households. If the Fed starts cutting rates, say, in September, we could see lower appetite for T-bills from households and money market funds, which ultimately would put upward pressure on short rates because of the big supply of T-bills not being met by similar strong demand.

Takeaways by Macro Roundup® AI

  1. The supply of Treasury bills has risen by $2 trillion over the past 12 months, with T-bills also rising significantly as a share of total debt outstanding.
  2. Rapid growth in T-bill supply alongside the Fed's quantitative tightening raises the risk of an accident in funding markets, as occurred in repo markets in September 2019.
  3. Fed rate cuts could lower T-bill appetite from households and money market funds, which would put upward pressure on short rates if large supply is not met by similarly strong demand.

Related Articles:

  • Who Buys Treasuries When the Fed Reduces its Holdings — Analysis of Federal Reserve balance sheet reduction finds that households and broker-dealers absorbed the additional supply of Treasury securities during the 2017–2019 episode, with household holdings correlated with hedge fund holdings. In the first year of the reduction begun in 2022, households purchased a large share while hedge funds did not, and insurance companies and foreign investors also increased holdings.
  • Long Live the Dollar — Foreign investors have been the dominant net buyers of longer-dated US Treasuries, purchasing a net $700bn over a 14-month period against $860bn in total net issuance. These purchases came largely from non-official entities such as hedge funds, pension funds, insurance funds, and banks, potentially motivated by high US interest rates or currency speculation.
  • Liquidity Deteriorating in Treasury Markets — A liquidity gauge for US government debt measures the average gap between quoted yields and values implied by fitted yield curves across Treasury notes and bonds with at least one year to maturity, and it indicates deteriorating liquidity. Small average yield errors signal favorable conditions, as mispricings are corrected quickly.
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