The signing of the Biden debt-bill will unleash a tsunami of US debt sales

After months of disruption, the Treasury Department has been given green light by President Joe Biden to resume new net debt issuance following the signature of the legislation suspending federal debt ceiling.

Treasury has used special accounting measures since mid-January when it reached the $31.4 trillion debt limit to ensure payments on all federal obligations. As of May 31, only $33 billion remained.

The government has also been reducing its cash balance. It dropped to below $23 billion as of June 1, a level that experts consider dangerously low, given the volatility of federal payments and revenues. The bill Biden , which was signed on Saturday, suspended the debt ceiling until Jan. 1, 2020. This allowed the Treasury to restore its cash balance to a more normal level. The Treasury Department had set a cash balance of $550 billion for the end June. The Treasury is also under pressure to increase borrowing due to a growing fiscal deficit.

The number of debt auctions is set to increase. The replenishing of securities, which could be in excess $1 trillion, could have unintended consequences. It could drain liquidity from the banks, raise short-term financing rates, and tighten the screws on a economy that many economists believe is headed towards a recession.

Bank of America Corp. estimated that the wave of issuance could have the economic impact of a Federal Reserve quarter-point rate hike.

Investors can get a sense of how quickly Treasury plans to increase issuance by watching the auction announcements. The Treasury Department announced on Thursday that it would increase the size of its upcoming offerings for three-month bills and six-month bills by $2 billion each in the next week. The department has already increased its four-month debt issuance, which is its latest benchmark.

The four- and eight week auctions have plenty of room for growth after they were reduced to 35 billion dollars each per weekly issuance cycle.

Treasuries began the week in a downbeat mood, with the benchmark 10-year yields rising four basis points to 3.73 % in Asia trading.

The removal of the debt limit will also prompt officials to undo emergency accounting maneuvers that they used to provide extra funding after Treasury reached the limit.

Unwinding will not affect borrowing from the public as the process involves the issuance of nonmarketable Securities to some internal funds like the Thrift Investment Plan Government Securities Investment Fund, which is for federal employees.

The Treasury has halted issuing these securities for the past few months while collecting the money that comes in.