Halister News

(Bloomberg) -- Forecast that projects roughly 50% of 2018 increase in issuance to be comprised of Treasury bills is “actually consistent” with the Treasury Borrowing Advisory Committee’s objectives of meeting increased demand for short-term securities and maintaining WAM “at or above current levels,” Morgan Stanley strategists Sam Elprince and Matthew Hornbach said in Nov. 3 note. 

• Treasury would be able to address bill shortage, which may worsen amid the continuous flows into government money funds; Treasury would also prepare for the possibility the Fed might consider eliminating or scaling back the RRP facility, which has been absorbing ~$300b in funds from domestic and foreign investors
• MS projects $717b net increase in issuance in 2018, including $337b in net T-bill supply, which accounts for 47% of the 2018 funding gap
• Even after accounting for fact that part of the increased funding is due to boosting the cash balance by $100b, bills would still be used to fill 38% of increased budget deficit, SOMA redemptions
• While the scenario may eventually lead to a drop in WAM, the drop would not occur until after 2021; MS expects share of T-bills to move into 25%-33% range by 2020
• TBAC has continued to acknowledge T-bill shortage in money market funds due to 2016 reforms, which resulted in funds’ AUM surpassing total amount of bills outstanding for the first time in a decade; T-bills now account for only 13% of total marketable debt outstanding vs 22% pre-crisis

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net Greg Chang