Treasury is seeking primary-dealer views on issuance practices stemming not from Treasury concerns about the shape of U.S. interest rates and government spending – the usual drivers of changed issuance patterns – but rather those due to the cost of new prudential regulations.  The most immediate of these apparently of concern to Treasury is the dramatic shift from prime MMFs to government ones sparked by the SEC’s new floating net-asset value (NAV) requirements for prime funds.  However, Treasury is also well aware of the impact of other rules on market liquidity, receiving extensive comment on this in the course of views provided on its request for input (RFI) on the overall structure of the market for U.S. Government (USG) obligations.  It remains to be seen if Treasury will change issuance patterns in the near term to address dislocations that may be of more concern than clearly signaled here, if it is seeking views to recommend actions for the next Administration, or if work with the Federal Reserve is advancing to address broader concerns about Treasury-market illiquidity.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.