Topic
Marketable Treasury debt has grown 71 per cent since 2019 while primary dealer capacity to hold it has grown 24 per cent. The mismatch shows up as wider bid offer on the days it matters most.
Policymakers stopped shrinking the portfolio on Wednesday and will direct maturing proceeds to Treasury bills. The signal reads as neutral on the policy rate and distinctly negative for duration.
A backstop that lends cash against Treasury collateral at a fixed rate should cap the secured funding rate. In late August it did not, and the reasons say more about the plumbing than about the level of reserves.
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