It has been a busy week of Fed speak, with three of the highest profile speakers—Powell, Brainard, and Clarida—on their soapboxes and Chairman Powell testifying twice before Congress. Meanwhile, long-term bond yields have been increasing, while short rates have been moving in the opposite direction. One probable source for this collapse in T-bill yields is the liquidity surge related to the Treasury General Account (TGA) held at the Fed.
In this Economics Weekly, we discuss something most equity market investors are not aware of, the TGA issue—its impact on liquidity and potentially market volatility in the near term, why investors need to be aware of the situation, and why it may portend a technical rate rise in the interest rate of excess reserves and the reverse repo rate.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.