Treasury dealers’ net bill holdings hit a two-year high as October 30 funding pressure nears

Treasury dealers’ net holdings of bills, short-term U.S. government debt, have reached a two-year high, according to the Federal Home Loan Bank of New York’s October 23 update. Financing those inventories puts dealer capacity in focus ahead of October 30, even while overnight dollar funding looks calm.FHLBNY attributes wider bill spreads partly to heavy issuance and money market funds shortening their portfolios amid uncertainty about Federal Reserve policy. Some cash has shifted from bill buying into overnight and short-term repurchase agreements, or repo. That allocation can support overnight lending even as dealers hold substantial bill inventories.The distinction is between cash being available and intermediaries having room to pass it on. A 2024 Federal Reserve staff study explains that moving repo cash from money funds to leveraged borrowers expands dealer balance sheets. Its authors hypothesize that tighter constraints increase the compensation dealers demand.Overnight conditions have remained calm. The latest New York Fed SOFR observations available on October 25 put the Treasury-backed borrowing benchmark at 3.9% for October 22, up from 3.88% on October 21. FHLBNY said SOF...