The Treasury will have to replenish its cash after the debt ceiling is lifted, Goldman Sachs said.
It may sell up to $700 billion in T-bills to rebuild its coffers withing six to eight weeks of a debt deal.
That could drain liquidity out of markets in a short period of time.
The Treasury Department will issue $600 billion-$700 billion in T-bills weeks after lawmakers agree to lift the debt ceiling, Goldman Sachs estimated.
President Joe Biden and Republicans in Congress have yet to reach a deal, but Treasury Secretary Janet Yellen reiterated her warning that the government will run out of money as soon as June 1.
House Speaker Kevin McCarthy indicated Monday ahead of his meeting with Biden that a deal could be made before the June deadline.
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 Treasury General Account was $60.7 billion, down from $140 billion just a week prior.
Overall, Goldman expects the Treasury will supply the market with more than $1 trillion of T-bills on a net basis this year.
That will pull liquidity out of financial markets. In a separate note, analysts at Bank of America recently said that would have an equivalent impact on the economy as a Federal Reserve rate hike of 25 basis points.
That comes as the banking sector is still grappling with the fallout of Silicon Valley Bank’s collapse, which led to deposits fleeing regional banks. Meanwhile, more than a year of Fed rate hikes has also drawn money from bank accounts and into higher-yielding money market funds.
Goldman estimated that bank reserves would drop by $400 billion-$500 billion due to the Treasury rebuilding its cash balance, continued deposit outflows, and the Fed’s ongoing quantitative tightening program.
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