Treasury cash balances rose sharply, pointing to a liquidity drain, though the move explains only part of last week’s decline and leaves markets watching whether new borrowing intensifies the pressure.
U.S. bank reserves dropped by $77.6 billion as Treasury cash climbed sharply, a move that can pull liquidity out of the financial system when government cash accumulates instead of circulating through banks. Attention is now turning to the Treasury’s Aug. 5 financing plan, which will indicate whether new borrowing adds to that drain. The note also cautions that Treasury flows account for only part of last week’s decline, suggesting other factors were also at work in the reserve drop.