The reduction in the U.S. Treasury Department cash pile that’s helped fuel imbalances in short-term interest-rate markets has now exceeded $1.5 trillion and the distortions may be far from over.

The cash balance ballooned last year as the government ramped up borrowing and spending to combat the economic effects of coronavirus-related shutdowns, hitting as much as $1.831 trillion in July 2020. But a combination of government spending and the situation surrounding the reinstatement of the U.S. debt ceiling — which came back into force this month — has driven it back down to less than $314 billion as of Wednesday. That’s the smallest since December 2019, before the onset of the COVID pandemic.

One major aspect of the reduction has been a decline in Treasury bill issuance, which has sent investors scrambling to find somewhere to park their cash. A lot of that spare money — more than $1 trillion — has ended up in the Federal Reserve’s reverse repurchase agreement facility. It has also kept downward pressure on rates for all sorts of short-term instruments, at times sending market rates for repo and T-bills below zero.

The cash balance has continued to fall as the Treasury engages in various measures to keep U.S. borrowing officially underneath the reinstated cap of $28.4 trillion. Bill supply has fallen by 17%, or nearly $850 billion, this year, according to Barclays Plc, and strategist Joseph Abate predicts that it will contract an additional $300 billion or more through the end of October.

Of course, in the longer-term there may also be pressures in the other direction, if and when Congress comes to a resolution on the debt ceiling. The Treasury itself is currently working on an assumption that the cash balance will be around $750 billion at the end of September. Depending on whether Washington lawmakers can come to an agreement, that may need to change, but if that is the case then cash could well flow rapidly out of the market at some point.