(Bloomberg) -- The amount of Treasury securities held by primary dealers rose to an all-time high, an indication that balance sheets are starting to fill up just as the government is slated to ramp up issuance.
Aggregate holdings of Treasuries, which are comprised of coupon bonds, T-bills, floating rate notes and TIPS, jumped to a record $362 billion in the week through July 24 from $318 billion the previous week, Federal Reserve Bank of New York data show. At the same time, mortgage-backed securities holdings were up about $2.8 billion at $118 billion, and federal agency holdings fell by $1 billion to $14.8 billion.
Treasury issuance has swelled in recent years to fund government deficits and replace securities rolling off the Fed’s balance sheet as part of quantitative tightening, or QT. As a result, primary dealers have had more supply to digest, and with holdings at all-time highs, their normal function as an intermediary in the market is constrained.
That’s kept the Secured Overnight Financing Rate, the benchmark derived from general collateral repurchase agreements, near levels typically seen at month- and quarter-end, when temporary strains in the funding market surface. Until recently, these higher rates have prevented balances from dropping at the Fed’s overnight reverse repo facility.
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