What GAO Found

In reaction to COVID-19, in March 2020 several investors quickly offered their Treasury securities for hard cash. This led to a serious liquidity disruption when costs fell and transaction prices rose for Treasury notes and bonds in the secondary marketplace. The Federal Reserve acted rapidly to assistance market working, including paying for trillions of dollars of Treasury securities.

This marketplace disruption highlighted threats to the Treasury marketplace. For instance, growth in federal personal debt and regulatory variations may perhaps cut down broker-dealers’ willingness and means to intermediate trades (facilitate purchases and income) of Treasury securities for traders. In April 2021 Treasury initiated an interagency effort and hard work to look at possibilities that could assist mitigate potential disruptions in the marketplace.

Following the sector disruption, Treasury immediately raised trillions of dollars to fund the federal reaction to COVID-19. It radically increased its issuance of bills—including introducing standard, weekly auctions of hard cash management payments, which have historically been issued irregularly to go over near-term financing gaps. The payments have been fulfilled with sturdy investor demand from customers. For illustration, GAO identified nearly no variance among cash management monthly bill and other monthly bill yields through this time.

Month-to-month Gross Issuance of U.S. Treasury Bills, Notes, and Bonds

Be aware: Notes and bonds consists of Treasury Floating Rate Notes and Inflation Secured Securities.

Owing to the uncertainty made by COVID-19, Treasury managed a historically significant running money balance of all-around $1.6 trillion. Its stated policy is to hold a level of money normally ample to include just one 7 days of outflows. Having said that, other aspects not explicitly reflected in its coverage educated how it managed the dollars harmony in the course of COVID-19. Industry members instructed GAO that they were being unclear about all of these elements. They explained that knowing the level and trajectory of the dollars equilibrium is significant because it has an effect on sector anticipations for the dimension of Treasury issuance, source of financial institution reserves, and small-phrase lending rates—all of which notify their enterprise tactics and support sector working. Moreover, uncertainty about the dimension of the money balance can guide to volatility in fiscal markets. This, in transform, can affect Treasury’s borrowing expenses.

Why GAO Did This Study

The federal government’s fiscal reaction to the COVID-19 pandemic substantially elevated the government’s borrowing wants. Treasury borrows cash desired by issuing Treasury securities. The capability to borrow large amounts of revenue swiftly and cheaply is in particular important throughout a disaster, when government paying out tends to increase and revenues are inclined to minimize. Any disruptions in trader demand for Treasury securities or the functioning of the Treasury market can have highly-priced implications for the federal authorities and taxpayers.

The CARES Act incorporates a provision for GAO to report on its monitoring and oversight endeavours connected to the COVID-19 pandemic. This report examines (1) how the value and liquidity of Treasury securities changed throughout COVID-19 (2) steps Treasury is having to mitigate potential disruptions and (3) the actions Treasury took to finance the federal government’s reaction to the pandemic.

GAO analyzed details on Treasury securities reviewed agency and market investigation and interviewed market place individuals across important financial sectors (e.g., broker-dealers, banks, mutual and dollars market place resources), current market industry experts, and Treasury and Federal Reserve officers.