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Lee Adler’s

Lee Adler’s

Category: Fed, Central Bank and Banking Macro Liquidity

Analysis of the major forces of macro liquidity that drive markets.  

Primary Dealers Show Signs of Dreaded Deleveraging

Lee Adler

Primary Dealer fixed income holdings have fallen since March, and most of the decline appears to be mark-to-market losses. The Treasury keeps adding supply, of which the Fed absorbs only a fraction, leaving dealers to take their share, required by their special status, as bond prices erode and the 10 year yield pushes toward 5%. The result is a deleveraging cycle in dealer balance sheets that raises the risk of forced, disorderly liquidation across markets.

This report shows where the cracks are in the Primary Dealer holdings, financing, and hedging statistics through mid-July. It also includes a look at hedge fund positions in the bond market, which are another canary in the coal mine of deteriorating liquidity conditions across asset classes.

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MacroliquidityTM – Two Charts that Should Shake Your Confidence

Lee Adler

This report features two charts that tell a coherent and sobering story. Repo financing that has quietly fueled this rally is plateauing in exactly the pattern that has preceded every major correction of the last few years. At the same time, junk bond spreads are sitting within a hair of their tightest levels in three years, which is precisely the condition that leads to an eventual unwind that is violent instead of orderly.

I have warned for months that the wave of Treasury supply set to hit in July would open a window of extraordinary risk. Below, these two charts, which you won’t see anywhere else, show why the calm on the surface is the least reassuring thing about this market.

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Liquidity Blowoff – The Final Stage

Lee Adler

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.

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Revenue Rot Meets Spending Surge: Treasury Supply Goes Gargantuan

Lee Adler

The federal budget deficit is running far ahead of the CBO’s $1.7 trillion fiscal 2026 forecast, driven by collapsing corporate tax receipts, court-ordered tariff refunds, and a surge in outlays that official war cost figures cannot explain. Treasury supply is already at record levels and the market’s capacity to absorb what’s coming will be severely tested. So will Fed Chairman Warsh’s stated goal of reducing the Fed’s market footprint.  This report has the details, and implications for professional investors.

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Primary Dealers Under Pressure as Their Inventory Value Drops and Short Hedges Surge

Lee Adler

Primary dealers are absorbing record Treasury supply. Evidence implies that there are losses but dealer futures short hedges are at historic extremes, so there may be some protection. The June liquidity cushion is smaller than last year and Treasury supply continues at astronomical levels. These conditions keep the system dangerously close to a stress event starting in July when June T-bill paydowns end. 

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Macroliquidity™ – Wall Street and the Plumber’s Crack

Lee Adler

The US Treasury prints money via the intercession of the Lord, whose name is Repo. That mechanism is on the cusp of breaking. Repo growth has stalled and is testing a critical uptrend line. Hedge funds are again unwinding basis trades. Dealers are forced to absorb massive supply with institutional buyers constrained to a fraction of issuance. The ever-rising sea of money needed to keep the Treasury market and stocks afloat on rising levels, has stopped rising. Crash risk is elevated and proximate.

This report shows why, how long we have, and what to look for in the data.

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Crash Risk Was Proximate. Now It’s Here

Lee Adler

The US Treasury prints money via the intercession of the Lord, whose name is Repo. That mechanism is on the cusp of breaking. Repo growth has stalled and is testing a critical uptrend line. Hedge funds are again unwinding basis trades. Dealers are forced to absorb massive supply with institutional buyers constrained to a fraction of issuance. The ever-rising sea of money needed to keep the Treasury market and stocks afloat on rising levels, has stopped rising. Crash risk is elevated and proximate.

This report shows why, how long we have, and what to look for in the data.

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Ever Growing US Federal Budget Deficit Leads to Never-Ending, Crushing Treasury Supply

Lee Adler

The federal budget deficit is running far ahead of the CBO’s $1.7 trillion fiscal 2026 forecast, driven by collapsing corporate tax receipts, court-ordered tariff refunds, and a surge in outlays that official war cost figures cannot explain. Treasury supply is already at record levels and the market’s capacity to absorb what’s coming will be severely tested. So will Fed Chairman Warsh’s stated goal of reducing the Fed’s market footprint.  This report has the details, and implications for professional investors.

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The Liquidity Pump is Stalling: Crash Risk is Now Proximate

Lee Adler

The US Treasury prints money via the intercession of the Lord, whose name is Repo. That mechanism is on the cusp of breaking. Repo growth has stalled and is testing a critical uptrend line. Hedge funds are again unwinding basis trades. Dealers are forced to absorb massive supply with institutional buyers constrained to a fraction of issuance. The ever-rising sea of money needed to keep the Treasury market and stocks afloat on rising levels, has stopped rising. Crash risk is elevated and proximate.

This report shows why, how long we have, and what to look for in the data.

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Monthly Treasury Supply Issuance Schedule Explodes

Lee Adler

Sell in May and go away is coming early this year.

Supply Tsunami, Arriving Early War spending blew a $142 billion hole in the usual April budget surplus. T-bill paydowns ended weeks before they normally do. The market must now absorb supply that dwarfs anything seen in comparable prior periods. Are you ready? This report replaces what the TBAC formerly published for us. It shows the bi monthly supply schedule of net coupon issuance and an estimate of the gargantuan T-bill supply that lies ahead. 

The unprecedented level of supply will lead to an unprecedented outcome. 

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