Reserve Drawdown Remains Unconcerning For Now (1/2)

There has been some analyst concern over the recent stagnation in the fall of the overnight reverse repo facility at the $1.8T level, as it potentially suggests that private sector / money market fund demand for the Treasury's onslaught of bill issuance may be waning - which would result in reserve drainage. That doesn't seem to be in evidence so far.

• On the liabilities side of the Fed balance sheet, there was a $11B increase in system reserves in the most recent reporting week to Aug 9, for the 3rd week in 4 (up $66B in the past month) alongside a $29B drop in the Treasury General Account (down $85B in the past month). That TGA drop was mirrored by a $26B increase in the overnight reverse repo facility.
• Reserves remain above $3.2T and have remained steady (and actually higher than pre-Silicon Valley Bank crisis levels of $3.0T), and despite analyst concerns, recent dynamics suggests little risk of scarcity soon.
• We maintain the view that such scarcity is only likely to become evident in late September, if not later, as Treasury issuance picks up further and the TGA builds toward $650B vs the current $430B.

Over time, QT will be a clear drain on reserves - but there was no change in the size of the SOMA portfolio (ie bond and bill holdings remained level) last week. Fed assets holdings were little changed, with a net increase of $1.5B, to $8.21T.