Halister News

(Bloomberg) -- Treasury bill rates may remain elevated after tax deadline amid increased issuance, a “more optimistic” FOMC statement and muted dealer appetite, Citi strategists Vikram Rai and Jack Muller wrote in note.

• 1-mo. bill rate 0.2593%; 3-mo. 0.3205%
• “Yield alternatives have some role to play but T-bill rates are driven more by supply-demand than anything else”
  • O/N RRP dynamics also have a “limited influence” on bill rates
• Issuance likely to remain elevated because Treasury has committed to increasing bill supply at expense of coupons and TIPS to address liquidity concerns
  • Treasury may also announce addition of 2-mo. bill auction
• While last payroll report is “unlikely to turn the March or April meeting into a live one,” probability of a rate hike in June and beyond should go up, which would be bearish for front-end
• Primary dealer balance sheets “remain heavy” with USTs, which has muted overall dealer appetites
• Spread between institutional prime funds and govt funds is at 16bps, which “remains compelling in this low yield environment”
  • May offset outflows from prime funds into govt funds, so the possibility of T-bills richening as compliance deadline nears is “less significant as long as spread products remain attractive”