Federal tax collections were solid in July. The recession that mainstream economists have been predicting, may be coming. xxxxx xxxxxxxx xxxxxxxxx. But it’s xxxxxxxx xxxxxxx xxxxxxxx . Withholding tax collections are still going xxxxxxx xxxxxx despite xxx xxxxxx xxxx.
That slowing isn’t out of the ordinary. Collections fluctuate month to month. They’re still solidly positive on balance. Non-subscribers, click here for access.
Government finances also benefitted from a sharp drop in spending. The usual July deficit became a surplus. Non-subscribers, click here for access.
Treasury supply was therefore light. In fact, nonexistent for the first 3 weeks of the month. There were $12 billion in net paydowns from July 1 to July 21. The markets were flooded with cash. Non-subscribers, click here for access.
The bond market had a stupendous rally. I had expected bonds to rally based on the light supply, but this was ridiculous. As usual, Wall Street overdid it. Now the xx xx xxx x x. Non-subscribers, click here for access.
While revenue growth shows no sign of going negative, Congress just passed a spending package that will increase spending. The deficit will begin to grow again. That xxxxx xxxxx to xxxxxxxxxx xxxxxxx supply. At the same time, investors and dealers will have less cash xxxxxxx xxxxx xxxxxxx. That will translate to lower prices and higher yields. Non-subscribers, click here for access.
We already saw the effects of the Treasury running out of excess cash in the last couple of weeks. T-bill paydowns ended as I had projected they would in July. New T-bill issuance is suddenly mushrooming. This will pull cash out of dealer and investor accounts and into the US Treasury, which will instantly spend it to pay its bills and obligations. Non-subscribers, click here for access.
That spending increase might even keep the US economy perking along at xxxxxxxx xxxxxxxxxxxx xxxxxxxx rate, surprising Street economists and portfolio managers. But the cash to support that growth will come from investor accounts and dealer accounts. More money for economic spending, less money for stock and bond purchases. Non-subscribers, click here for access.
The bond rally should xxxxxxxx, xxxxxxxxx xxxxxxxx. The stock rally should xxxxxxx xxxxxxxx xxxxxxxx. If there’s something that would sustain these rallies, xxxxxxxxx xxxxxxxxx xxxxxxxxx. Non-subscribers, click here for access.
Tomorrow I’ll issue a report on Fed QT vs. Treasury supply that examines the recent rally, and a more in depth look at why and where it’s likely to reverse. Non-subscribers, click here for access.
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