💵 Investors See Relief Ahead as the Fed Resumes T-Bill Purchases to Ease Money-Market Strains
The Federal Reserve is set to expand its balance sheet again — this time by buying short-dated Treasury bills — in a move expected to calm recent liquidity pressures in U.S. money markets.
Beginning December 12, the Fed will purchase around $40 billion in T-bills as part of its effort to stabilize market liquidity and maintain firm control over its interest rate target system.
🔹 Why It Matters
The decision comes after weeks of rising stress in the $4 trillion repo market, where banks and hedge funds borrow cash against U.S. Treasuries. Repo rates — including the Secured Overnight Financing Rate (SOFR) — have repeatedly spiked, signaling tighter liquidity even after the Fed halted quantitative tightening (QT).
Higher repo rates force lenders to charge premiums and can disrupt arbitrage trades that keep Treasury markets liquid.
“You do need the Fed in an expanding balance-sheet position,” said Robert Tipp, Chief Investment Strategist at PGIM Fixed Income.
“This provides a good backdrop for arbitrage between Treasuries and futures.”
🔹 What Caused the Liquidity Squeeze?
Analysts cite several factors:
- A surge in Treasury bill issuance
- Government shutdown delays, which boosted the Treasury General Account (TGA) and drained bank reserves
- QT ending earlier this month, but repo rates remained stubbornly high
Liquidity typically tightens toward year-end, and many analysts expected the Fed to restart purchases in early 2026 — making this earlier shift a signal of urgency.
“Repo trading above administered rates persisted into early December,” said Stephen Douglass, Chief Economist at NISA Investment Advisors.
“This decision removes the risk of funding pressure or repo dysfunction.”
The Fed’s move is widely viewed as a stabilizing step that should help normalize short-term funding markets and reduce volatility heading into year-end.