U.S. Treasury index rates influence other types of securities and are an important indicator of how much risk investors are willing to take on. Components of a Treasury index are likely to be the weighted average prices of 5Yr, 10Yr, and bond-futures contracts. Since the elements have different investment time frames, each weighting is adjusted for equal contribution to the index. A Treasury index has a basis on the U.S. Treasury’s daily yield curve – еhe curve that shows the Treasury’s return on investment (ROI) on the U.S. government’s debt obligations. The Treasury yield determines the interest rate that the U.S. government can borrow money for various lengths of time.

Meanwhile, U.S. Treasury needs to issue an approximate total amount of US$1.1 trillion in T-bills in H2 2023 to replenish its operating cash balance. Absorption of the US$1.1 trillion of T-bills issuance may trigger a significant liquidity squeeze. As a result, liquidity conditions in the U.S. have started to tighten, being reinforced by an increase in implied volatility of U.S. Treasury bonds and a less dovish Fed.

After Congress will have passed the Debt ceiling deal, the next step for the authority will be an attempt of catching up with the U.S. Treasury bills (T-bills) issuance to faster shore up its dwindling cash reserves to meet its debt and payment obligations. The U.S. Treasury’s operating cash balance stood at US$38.84 billion as of 25 May 2023, its lowest level since September 2017.

Hence, the U.S. Treasury needs to catch up by a total issuance of approximately US$1.1 trillion worth of T-bills in 2H 2023 which can be absorbed by banks’ reserves via deposits and overnight repos with the Federal Reserve as well as money market mutual funds. If more absorptions are done via money market mutual funds, the strain on liquidity is likely to be muted.