US Treasury cash balance to hit $500 billion by end-July after debt ceiling rise

By Gertrude Chavez-Dreyfuss

NEW YORK, July 8 (Reuters) - The U.S. Treasury said on Tuesday it will build its cash balance to $500 billion by the end of July following the increase in the debt ceiling by $5 trillion with the signing into law of President Donald Trump's tax and spending bill.

The department made the announcement in a separate guidance accompanying the statements on the size of the four-week, eight-week and 17-week Treasury bill auctions.

Its cash balance had fallen to $372 billion as of last week, according to JP Morgan in a research note, "well below levels consistent with its operating framework."

The Treasury said it plans to increase issuance of T-bills to "continue financing the government and to gradually rebuild the cash balance over time" to a level in line with the department's cash balance policy.

At the May refunding, the Treasury had estimated $850 billion in cash balance for the end of September.

The Treasury also said it will focus on issuing shorter-tenor securities, specifically the four-, six-, and eight-week bills. On Tuesday it increased the size of four- and eight-week bills sharply.

The size of each auction rose by $25 billion, bringing the four-week tranche to $80 billion and the eight-week bill to $70 billion to $150 billion for Thursday's sale, up from $100 billion previously.

According to Action Economics, these are the highest levels seen since the May 22 auctions, as the Treasury wastes no time in using T-bills to replenish its cash balances.

The department also announced it does not expect to issue cash management bills (CMBs) to rebuild its cash account, preferring to rely on increases in bill issuance. It added the series of CMBs announced on June 24 is now complete.