Good morning,

It remains calm before the storm, if this liquidity/deposit crisis is truly turning into a credit crunch in the banking system.

Money market funds inflows decreased to around 30bn over the past week, but it is not an overly big surprise since there is a scarcity of investable T-bills around due to the debt ceiling. The 1-month bill trades at implied rate levels below 4%, meaning that there is an overdemand of such a paper from players without access to the ON RRP, while the 2-month bill trades at implied rates of 4.6%.

The Money Market inflow will likely resurface once the debt ceiling deal is settled. Given that the “live” assessment of the Treasury General Account leads to a conclusion that less than $80bn are parked at the Fed, this issue of the debt ceiling may prove to be more imminent than thought by many including the Congressional Budget Office.

Chart 1: Money market inflows are slowing