The Treasury Department could issue $700 billion in Treasury bills within weeks of a debt ceiling deal, draining liquidity from markets

• The Treasury will need to replenish cash after the debt ceiling is lifted, Goldman Sachs said.

• It could sell up to $700 billion in Treasury bills to rebuild its coffers within six to eight weeks of a debt deal.

• It can drain liquidity out of the markets within a short time.

The Treasury Department will issue $600-700 billion in government bills weeks after lawmakers agree to raise the debt ceiling, Goldman Sachs estimated.

President Joe Biden and Republicans in Congress have yet to reach an agreement, but Treasury Secretary Janet Yellen repeated her warning that the government will run out of money as soon as June 1[ads1].

Speaker of the House Kevin McCarthy indicated on Monday ahead of his meeting with Biden that an agreement could be concluded before the deadline in June.

Once a settlement is reached, as is widely expected, Goldman expects the Treasury to flood the market with T-bills, restoring its cash balance to $550 billion within six to eight weeks of the deal.

On Friday, the financial statements were at $60.7 billion, down from $140 billion just a week earlier.

Overall, Goldman expects Treasuries to supply the market with more than $1 trillion in T-bills on a net basis this year.

It will draw liquidity out of the financial markets. In a separate note, analysts at Bank of America recently said it would have a similar impact on the economy as a 25 basis point increase in interest rates by the Federal Reserve.

It comes as the banking sector continues to grapple with the fallout from the collapse of Silicon Valley Bank, which sent deposits fleeing regional banks. Meanwhile, more than a year of Fed rate hikes has also pulled money out of bank accounts and into higher-yielding money market funds.

Goldman estimated that bank reserves would fall by $400 billion-$500 billion due to the Treasury rebuilding its cash balance, continued deposit outflows and the Fed’s ongoing quantitative easing program.

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