Good news of a tentative deal for the U.S. debt ceiling impasse may quickly turn out to be bad news for financial markets.
on Saturday reached a tentative deal
The raising of ceiling is expected to be followed by the issuance of nearly $1.1 trillion in new Treasury bills over the next seven months, according to recent JPMorgan estimates, a relatively large amount for that short a period. "But what this doesn't solve, is that along the whole Treasury curve yields have gone up recently... in anticipation that there will be a lot of issuance of treasury bonds and notes and bills in the next few weeks because the U.S. Treasury has to replenish its cash."
The drain on liquidity is not a given, however. The T-bill issuance could be partly absorbed by money market mutual funds, shifting away from the overnight reverse repo facility, where market players lend overnight cash to the Fed in exchange for Treasuries.
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