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HIGH TGA BALANCE OF 1TN USD DOES NOT IMPLY SCARCE LIQUIDITY

ADMIN || 4th November 2025

The Treasury’s account at the Federal Reserve rose above the $1 trillion mark on Friday which has led to overnight SOFR jumping to 4.22%, i.e 32 bps over IOER. While this optically makes liquidity look tight, there are valid reasons why TGA is running so high & is likely to correct soon.

The Treasury has a target of about $850 billion for its account at the Fed (the TGA), but the balance has climbed well past this level in recent weeks, and stands now at the highest level since the pandemic.

Because the TGA account absorbs liquidity from the system, this might be seen as cause for concern. It’s also happening at a time when pressures in the funding market have risen, with reserves going from being “abundant” to merely “ample”.

However, it’s important to note the Treasury is not a mere passive actor in this. It is aware that taking money out of the economy, mainlythrough bill issuance, and stashing it at the Fed would impact risk assets. Secondly, there are some mechanical and entirely expected reasons for the rise in the TGA. The ongoing US shutdown simply means the government has less money to spend.

The TGA is required to hold enough cash to cover gross redemptions plus net spending over the following week. A combination of heavy upcoming redemptions, spending needs that are not impacted by the shutdown, and less going out for expenses that are affected by it, has led to an unusually high TGA balance.

It shouldn’t last, though, as the money is drawn down to meet these imminent costs. Funding markets should continue to be monitored closely, but it’s probably safe to dismiss any scare stories on the TGA.

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