The US Treasury is under increasing pressure to cut the supply of Treasuries in order to meet the debt ceiling target that will be restored at the end of this month.

A potential return to the debt ceiling, last suspended in 2019, will force the Treasury to cut its cash balance from more than $700 billion on June 29 to about $450 billion by the end of July. This means reducing the issuance of Treasury bills to help reduce the cash balance. But after announcing plans to keep issuance unchanged next week, the Treasury has only three weeks to control supply.

The resumption of the federal debt ceiling at the end of July also means that the mismatch between a short-term shortage of securities and a surge in demand is likely to get worse. The Fed's bond-buying program and the federal government's fiscal stimulus have contributed to the current imbalances in the short-term bond market.

The cash glut in money market funds has caused interest rates on short-term instruments from bills to repurchase agreements to be close to or below zero since the start of the year and pushed demand for the Fed's reverse repo facility close to $1 trillion.