Lee AdlerThe 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.
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.
In this brief update bulletin: The Treasury’s bill issuance just swung $124 billion in a single week versus year-ago. The repo market isn’t keeping pace, and foreign central banks are walking away. The crunch is here.
The unprecedented level of supply will lead to an unprecedented outcome.
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.
The seasonal T-bill paydown tsunami has arrived. Since March 24, $220.8 billion in T-bill paydowns has flooded the market with cash, temporarily overwhelming every bearish structural force. We have been on the alert for this. It happens every year. The magnitude of the rally is unusual. The mechanism is not.
The seasonal T-bill paydown tsunami has arrived. Since March 24, $220.8 billion in T-bill paydowns has flooded the market with cash, temporarily overwhelming every bearish structural force. We have been on the alert for this. It happens every year. The magnitude of the rally is unusual. The mechanism is not.
Dealer Positioning Primary Dealers have stopped growing their long fixed income inventories. Coupon holdings have flatlined; recent accumulation has shifted entirely to T-bills. Dealers are no longer absorbing new supply — they are xxxxxxx xxxxx xx.
The seasonal T-bill paydown tsunami has arrived. Since March 24, $220.8 billion in T-bill paydowns has flooded the market with cash, temporarily overwhelming every bearish structural force. We have been on the alert for this. It happens every year. The magnitude of the rally is unusual. The mechanism is not.
The US Treasury is effectively acting as a massive money printer, but the transmission belt connecting debt issuance to stock market gains is beginning to slip. While seasonal tax revenue provides a temporary liquidity “firehose,” structural regime changes in the Treasury and repo markets suggest a long-term bear market is looming, once seasonal Treasury bill paydowns generated by the March-April tax windfall, subside in late May.
Federal tax data tells a story the BLS doesn’t: employment growth is stalling, corporate profits are getting squeezed by tariffs, and a ballooning deficit shows no sign of moderating — with war costs making it worse. That can mean only one thing.
The tide that floated all boats for three years is receding. The perpetual motion machine that debt built is running in reverse. The Treasury basis trade that quietly financed the federal deficit while fueling a three-year equity bull market began unwinding in September 2025, and the liquidity architecture it supported — repo, foreign central bank demand, and speculative equity commitment — is now deteriorating simultaneously, with no replacement buyer in sight.
The Treasury market faces growing fragility as Primary Dealers are forced to absorb a relentless supply of government debt. To manage this “deal with the devil,” dealers have turned to extreme financial engineering, ballooning their leverage through repo markets and complex hedging to keep prices stable. However, this mountain of offsetting long and short positions has created a precarious equilibrium; any sudden widening of the narrow gap between cash and futures markets could trigger a rapid, uncontrolled unraveling of hedges.