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Reflections #36 - TGA refill after the drain... a storm brewing or a storm in a teacup?

Today's numbers for the Treasury General Account (TGA) will shed some light on where liquidity is drained to refill Uncle Sam's cash coffers.

After a monthslong impasse due to the debt ceiling crisis, the government is now playing catch-up to refill its bank account. The aim for end of July is USD450bn compared to USD134bn in mid June.

This may have a major implication for markets and liquidity depending from which sources the liquidity is drained.

A drain from the reverse repo facility which has risen to a whopping 2.6trn USD over the last 2 years and now stands at USD2.4trn (blue line) would merely be a switch from one pocket to another, as the money is moving from the Fed to the UST.

However, if the money is drained from bank reserves (green line), this would indeed constitute a liquidity drain and most likely be risk asset negative, given the opposite held true for most of the year (Chart 2).


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