Treasury dealers' net bill holdings reach two-year high ahead of October 30

Treasury dealers' net holdings of bills have hit a two-year high, as reported by the Federal Home Loan Bank of New York on October 23. This increase in inventory raises concerns about dealer capacity ahead of October 30, despite stable overnight dollar funding. Wider bill spreads are attributed to heavy issuance and money market funds reducing their portfolios amid Federal Reserve policy uncertainty. Some cash has shifted from bill purchases to overnight and short-term repurchase agreements, supporting overnight lending while dealers maintain significant bill inventories. A 2024 Federal Reserve staff study indicates that moving repo cash from money funds to leveraged borrowers expands dealer balance sheets, suggesting tighter constraints may increase compensation demands from dealers. The New York Fed's SOFR observations show the Treasury-backed borrowing benchmark at 3.9% for October 22, up from 3.88% on October 21. FHLBNY highlights upcoming pressures from the Canadian bank year-end on October 30 and cash leaving repo to pay mortgage-backed-security holders. Bitcoin's perpetual funding has also seen a rise, increasing from 0.1% annualized on October 13 to 7.2% by October 20, indicating a rebuilding of leverage. Coinbase's financing data shows centralized-finance overnight rates between 4.25% and 12.5%, with Bitcoin borrowing rates ranging from 1.25% to 4.75%. The relationship between Treasury and Bitcoin markets may strengthen if repo pressures continue while crypto borrowing conditions worsen.

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