NEW ISSUANCE? NO PROBLEM!
Over the past two years, the U.S. Treasury has increasingly been reliant on Treasury bills (T-bills) to meet its financing needs, a shift driven by the high cost of financing long-term debt and volatile macroeconomic environment.
Following the 2023 debt-ceiling resolution, the Treasury undertook an aggressive reconstruction of its cash buffer, turning decisively toward the bill market to replenish the Treasury General Account. Recent refunding statements continue to reinforce this trajectory, signaling that bills will remain an elevated share of the government’s financing mix for the foreseeable future.
With the Treasury signaling a preference for keeping the bill share of outstanding debt in the 15–20% range (via the Treasury Borrowing Advisory Committee/TBAC), and with net borrowing needs expected to remain elevated, the market has come to expect further increases in T-bill issuance in the years ahead. Coinciding with this shift are money market funds (MMFs), which have undergone a historic expansion of their own. Assets under management have surged to roughly $7.54 trillion, propelled by the sharp rise in short-term rates, heightened demand for safety and liquidity, and the reallocation of cash away from banks. Government MMFs, those that are primarily invested in T-bills and the Federal Reserve’s Overnight Reverse Repurchase Facility (ON RRP), have become substantial buyers of short-term government debt.
Chart 1: Overnight Reverse Repurchase Agreements Treasury Security Sold by the Federal Reserve in the Temporary Open market Operations
This creates a critical question for the market: Can MMFs continue absorbing rising T-bill supply, especially as the Federal Reserve approaches the end of quantitative tightening (QT)?
Recent market dynamics suggest that that answer is more than likely yes. As T-bill issuance increased sharply through 2023 and 2024, MMFs correspondingly drew down their ON RRP balances, according to the Office of Financial Research, demonstrating MMFs’ ability to fund issuance by shifting cash out of the Fed’s facility and into bills. As QT slows and reserves stabilize, their capacity to absorb further bill supply may even strengthen. The Federal Reserve’s own monetary policy report notes this trend as well, although this should come as no surprise to most. ON RRP balances, once holding massive amounts of excess liquidity, have fallen from a peak of over $2 trillion in 2022 to around $900 million by mid-November 2025, as the Fed’s QT winds down and is scheduled to end on December 1, 2025. This shift in liquidity reflects MMFs’ ability to redirect cash toward T-bills as supply has increased (Chart 1).
AS QT SLOWS, MONEY MARKET FUNDS ARE SHIFTING CASH FROM RRP TO T-BILLS, HIGHLIGHTING THEIR INCREASED CAPACITY TO FUND RISING ISSUANCE AMID STABILIZING RESERVES.
Source: St. Louis Federal Reserve 4 | ADMISI - The Ghost In The Machine | Q4 Edition 2025
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