Fed’s Unwind Plan Leaves Money Markets Starved for Supply
- Policy makers suggest redeeming bills when coupons below cap
- Strategy for bill holdings is ‘QT filler,’ TD’s Goldberg said
Money market funds and other short-end U.S. rate investors will have to wait a bit longer for any substantial reprieve from the shortfall of Treasury bills, with the Federal Reserve signaling that it plans to wind down its stockpile of those securities at a measured pace.
That stands in contrast to a more rapid scenario that some had speculated might be in the offing, in which the Fed would opt to quickly exit some of its shortest-maturity holdings. In discussing their plans for shrinking the central bank’s expanded balance sheet, policy makers said it would be appropriate to gradually reduce the $326 billion of bill holdings, redeeming the securities when payments of coupon-bearing debt were below the Fed’s suggested monthly reinvestment cap for Treasuries, according to minutes of their March gathering.