Lee AdlerThe wall was at the top of the liquidity cliff. He dared the market to jump. Today it did. When the market is ready, a catalyst appears. The tariffs, and a weak jobs report lit the match.
Will it have a great fall, or levitate once more?
A little oopsie. RRP slush fund falls $57 billion today as counterparties withdraw funds to buy the flood of T-bill issuance. The slush fund should be bone dry in about 10 days.
This is impressive. With today’s T-bill announcement of a mammoth $245 billion in gross issuance and $60 billion in net new paper, the Treasury is issuing $127 billion in net new T-bills this week. And the markets are yawning.
Something will break, soon. See this week’s Liquidity Trader Macro Liquidity update for details on what to expect.
The liquidity cliff is here. But nothing has changed. Stocks have been rallying. Bonds are rangebound.
We’re now at a critical fork.
The liquidity cliff has been delayed as the US Treasury has not moved with its usual speed when the debt ceiling is lifted. It must restore accounts that it has raided under “extraordinary measures” to stay under the previous debt limit. And it normally moves to rebuild the Treasury account (TGA) to its target level, announced at the quarterly refunding announcement. In this case that’s $850 billion.
The liquidity cliff has been delayed as the US Treasury has not moved with its usual speed when the debt ceiling is lifted. It must restore accounts that it has raided under “extraordinary measures” to stay under the previous debt limit. And it normally moves to rebuild the Treasury account (TGA) to its target level, announced at the quarterly refunding announcement. In this case that’s $850 billion.
The cliff came early. I had projected August under the assumption of politics as usual. That assumption was wrong. Politics no longer works the way it used to, i.e., under a system of checks and balances. The one-party state lifted the debt ceiling by $5 trillion in the context of the rump BBB bill through Congress and the President signed it into law, without the usual down-to-the-wire Kabuki theater. Instead, we now have strongman theater.
We need to get used to that. Although that does not mean that future policy enactment will be any more predictable.
So now we have to ask. Will markets rise?
Can pigs fly?
Here’s the answer.
The US is approaching a liquidity cliff when the government runs out of cash and floods the Treasury market with a tsunami of supply. Unlike previous episodes, there’s no emergency backup fund. The politics is heating up, but it won’t change the timeline estimate.
Here’s the data, the charts, and the analysis leading to the timeline estimate and guiding us through the weeks ahead.
The chart of combined foreign central bank holdings and RRPs with the Fed continues to plunge in opposition to the US market rallies. The charts show that foreigners continue run from the US.
The countdown to a U.S. liquidity cliff is narrowing. Treasury cash is still being drained aggressively, and while estimated tax inflows on June 15 provided a brief lift, outflows have already resumed. The illusion of calm may persist through xxx xxxxxx, but underlying conditions suggest a serious funding shock will emerge by xxxxxxxx xx or sooner.
Here’s the data, the charts, and the analysis guiding us through the weeks ahead.
The countdown to a U.S. liquidity cliff is accelerating. This report lays out the critical data and underlying forces pushing markets toward that cliff—seemingly with no awareness or care. Many will go over. We’ll be prepared to stop short.
Here’s the data, the charts, and the analysis guiding us through the weeks ahead.
Withholding tax collections rose year-over-year as of June 2, but the underlying trend has been weakening since December. Despite a short-term rebound, the muted bounce points to recession risk, especially given disruptions from tariffs.