Minutes of an obscure Treasury Department advisory committee has some market participants wondering about potential market risks for which the government is seeking to raise cash.
The Treasury Borrowing Advisory Committee, a group consisting of investment and banking industry representatives who meet quarterly with high-ranking Treasury officials, earlier this week discussed the possibility of raising cash to forestall against potential risks.
Said a deputy assistant secretary paraphrased in minutes released Wednesday: "Several events had made it clear that market access and settlement risks could also potentially impair Treasury's ability to fund government expenditures for several business days."
One official speaking a news conference cited 9/11 and superstorm Sandy as the sort of events that could disrupt the bond trading needed to fund government operations.
The official also announced a test — for the first time since 2002 — in the coming quarter to buy back debt to make sure that government IT systems are adequate should the need arise.
Some on Wall Street and beyond are questioning what the Treasury official insists is a merely a prudent measure.
As Nomura Holdings strategist Stanley Sun, quoted by Bloomberg, put it:
"Treasury is likely thinking that they want to be ready if the day comes that they need to use them so they should do some testing. But people in the market tend to think that when the Treasury or Fed tests something, it ends up happening, as was the case with the Fed's reverse-repo program."
The Zero Hedge blog sounded a greater alarm, asking "do they know something we don't" and "just what upcoming event" prompts Treasury worries about "losing market access?"
David Santschi of TrimTabs Investment Research, in a phone interview with ThinkAdvisor, professed ignorance of "Treasury plumbing" and therefore withheld comment on Treasury's cash-raising operations. However, Santschi was far less sanguine and far more vocal about another aspect of the TBAC minutes.
