(Bloomberg) -- Treasury-bill yields have risen sharply as a wave of new issuance tests investor demand, posing a threat to the stability of overnight funding markets.
That dynamic showed up in the eight-week bill auction this week, with its record-low demand and yields at 4.05%, the highest in over a year — evidence of investor reluctance to pile into the growing supply of bills to fund the widening deficit and an uncertain path of Federal Reserve interest rates over the coming months.
That pressure, however, has yet to spill into the funding market that remain flush with cash, leaving it vulnerable to the growing stress evident in T-bill debt.
“Several competing forces are shaping money markets this month,” Barclays Plc strategist Samuel Earl wrote in a note to clients. “Depending on where one looks, the market appears caught between two very different narratives: signs of emerging funding pressure on one hand, and surprisingly subdued conditions on the other.”
Treasury has already issued nearly $100 billion of net T-bills through the first half of October, TreasuryDirect data show. Barclays estimates coming supply will exceed $320 billion over the next six weeks.