Treasury Bill Positions Reach Two-Year High Before Oct. 30

U.S. primary dealers’ net long positions in Treasury bills reached a two-year high amid large bill auctions, drawing attention to dealer holdings as repo markets face potential cash pressures. The Secured Overnight Financing Rate (SOFR) was at or below 3.90% during the week ended Oct. 23, matching or staying below the Federal Reserve’s interest rate on reserve balances.

SOFR may test the 3.90% level more steadily in coming weeks. Government-sponsored enterprises (GSEs) are expected to pull cash from repo markets to pay holders of mortgage-backed securities. Canadian bank year-end falls on Oct. 30. These are potential pressure points, not evidence of a funding squeeze already underway.

Repo is short-term financing backed by securities. Dealers can connect cash investors with leveraged Treasury investors seeking financing, and that intermediation uses dealer balance-sheet capacity. Dealer position figures track securities exposure, while SOFR tracks an overnight financing rate.

Net bill issuance is projected to remain positive through November before turning negative in December. Money market funds have shortened their portfolio weighted average maturities in recent months, contributing to wider spreads on short-term paper. Some funds have shifted purchases away from Treasury bills and into overnight and short-term repo.

Bill auctions on Oct. 22 were calmer than those the previous week, offering a counterpoint to the recent supply pressures. The weekly dealer-position measure includes securities scheduled for immediate or forward delivery and certain when-issued securities. The figures may be revised.