The U.S. Treasury is expected to issue trillions of dollars in additional debt this year to fund a historic stimulus package meant to ease economic pain from the coronavirus outbreak. And one buyer eclipses all others: the Federal Reserve.
In March, U.S. lawmakers agreed to a $2 billion package to provide relief to businesses, households and local governments struggling to cope with the shutdowns imposed in many cities across the country. Goldman Sachs analysts estimate the Treasury Department will need to issue $3 billion worth of securities, including some wiggle room to cover funding needs, to pay for this huge undertaking.
While the U.S. central bank has already pledged to buy an unlimited amount of Treasuries to keep the world’s largest debt market functioning smoothly, analysts say they expect the Fed to be the first buyer of this newly issued debt, grabbing about $2 billion this year, a record.
Money market funds, which typically invest in short-term treasury bills, lag far behind in the purchasing ladder. Goldman estimates that treasury bills, which have a maturity of one year or less, will account for about half of net issuance. This should allow these funds to serve as big buyers of the “slack,” Goldman said, racking up debt that others don’t.
Less useful this time around is the foreign official sector: governments, central banks and international organizations. Unlike 2009, when foreigners stepped in to buy much of the Treasury Department’s issued securities, the sector has more recently sold its holdings.