The yields on US Treasury bills have surged above 5.4%, topping the earnings investors can gain from the Federal Reserve's reverse repo facility, according to data from Tradeweb. This development was reported on Tuesday.
The yields of Treasury bills, which are government-issued securities maturing within a year, have been persistently above 5% due to the Federal Reserve's policy rate hike in July to a range of 5.25% to 5.5%, marking the highest increase in 22 years. This move has contributed significantly to the rise in bond yields.
Tradeweb data reveals that bill yields have seen the most significant jump on government securities maturing in one, two, and three months over the past year, increasing by more than 100 basis points. Yields on four-month, six-month and one-year bills also gained roughly between 69 to 81 basis points during the same period.
The elevated Federal Reserve policy rate has propelled all six series of Treasury bills above 5.4%. In contrast, the Fed's overnight reverse repo rate has remained steady at 5.3% since July 26, when it last increased rates.
The rise in Treasury yields has lured money-market funds and other investors towards short-term government bills as a preferred option for parking cash over the short term to earn returns. This shift has led to a decrease in demand for the Fed's reverse repo facility, which has been a crucial component of financial markets' infrastructure over the past two years.
According to data from the New York Fed, demand for this facility peaked at slightly more than $2.5 trillion in December but fell below $1.49 trillion on Tuesday, marking its lowest level since March 2022.
The surge in Treasury-bill yields has also been fueled by an influx of new supply aimed at replenishing coffers depleted by the US debt-ceiling dispute. In August, the Treasury increased its anticipated borrowing need to $1 trillion for the third quarter.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.