The balance between QE and Treasury supply will remain bullish through through xxxx (subscribers only). This should provide a boost for stocks. It should keep the Treasury selloff at bay for another month or two.
However, this is not as bullish as I first thought. It appears that around 75% of the T-bill paydowns are going to money market funds and other institutions who must hold short term instruments instead of lengthening maturities or buying stocks. So most of the cash from the paydowns is ending up in Fed RRPs.
Only about ¼ of the money has been used to buy stocks and bonds. So the effect has been muted. There’s no massive blowoff. Instead conditions lend themselves to a churning topping action lasting through xxxx (subscribers).
I have previously made the case for the Treasury to run out of money around xxxxx (subscribers) in the tax collections report. If that estimate is correct, the outlook will turn negative in xxxxx (subscribers). But for now, bullish liquidity forces remain in place, outside of the usual month end supply pressure.
That pressure will be less than usual because the Treasury is paying down T-bills. The market should sail through xxxx xxxx with little damage. Then we return to a more bullish liquidity outlook for the rest of xxxxx.
A selling opportunity for both stocks and bonds will arise as the Treasury approaches the point where its cash is used up. That’s will happen in xxxx when xxxx. It is still $779 billion, down around $200 billion over the past month. To meet the legal requirement, the cash depletion rate will need to increase to xxxx in xxxx, which could mean even bigger Treasury paydowns.
The increase in Treasury supply will come in xxxx. A stock market top, and renewed bond market decline should occur then.
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