The Treasury market is facing a dangerous convergence of forces as a massive wave of new supply hits a financial system fueled by a final, parabolic surge in money growth. Other asset classes, particularly stocks, depend on a stable Treasury market foundation. While stock markets have remained buoyant, the underlying mechanics that have driven years of asset price inflation are reaching a stage of extreme, perhaps terminal, excess.
In this update, I break down why the growth of repo that has helped finance Treasury issuance is showing signs of exhaustion, and what this apparent final-stage blowoff in money growth means for the broader financial landscape. I examine the critical shifts in positioning and money measures that suggest the market’s capacity to absorb incoming debt is at its breaking point, and look at why the current, speculative disconnect between bonds and equities is at an unsustainable limit.
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