Treasury Bill Issuance Eases Funding Pressures but Reserves Still Expected to Fall Below $3 Trillion

Goldman Sachs expects bank reserves to fall below $3 trillion by the end of the quarter despite the Treasury's recent issuance of US Treasury bills. The bank believes the front-loaded bill supply will ease funding pressures, but ultimately lead to a gradual slide in reserves. Goldman also expects the Federal Reserve to end its balance sheet runoff by the end of October.

Goldman Sachs has predicted that bank reserves will fall below $3 trillion by the end of the current quarter, despite the recent issuance of US Treasury bills by the Treasury. The bank believes that while the front-loaded bill supply will ease funding pressures in the short term, it will ultimately lead to a gradual decline in reserves.

The Treasury has been aggressively refilling its coffers, known as the Treasury General Account (TGA), since Congress lifted the debt ceiling two months ago. In August, the department's net new supply of bills totaled more than $373 billion, according to TreasuryDirect data. While this issuance was significant, it is expected to ease in the coming weeks, lightening the load on front-end markets.

Goldman Sachs expects funding costs to continue drifting higher over time, putting pressure on the Federal Reserve to end its balance sheet runoff. The bank anticipates that the Federal Reserve will conclude its balance sheet runoff by the end of October.

The strategists at Goldman Sachs estimate that just $50 billion of net bill supply will be needed to maintain a quarter-end TGA target of $850 billion. However, they also note that the Federal Reserve's overnight reverse repurchase facility (RRP) may not be as effective in the coming weeks, given that demand for the facility has collapsed to a four-year low in August.

Barclays Plc also expects softer funding markets this month, with a team including Samuel Earl recommending that investors buy the Secured Overnight Financing Rate's September futures contract versus its fed funds counterpart.

Recent comments from Lorie Logan, president of the Federal Reserve Bank of Dallas, indicate a higher tolerance for episodic volatility in funding markets, which the Goldman strategists describe as "modestly hawkish."

References:
[1] https://www.marketscreener.com/news/elevation-point-announces-strategic-collaboration-with-goldman-sachs-to-help-elite-partner-firms-thr-ce7d59dad988f421
[2] https://www.bloomberg.com/news/articles/2025-09-02/goldman-sees-reserves-below-3-trillion-despite-funding-relief
[3] https://www.ainvest.com/news/goldman-sachs-coo-waldron-sells-13-7m-common-stock-2508/