Withholding tax collections were strong in June. The US economy shows no sign of slowing. More importantly, strong revenue growth has restrained the growth of Treasury supply. Consequently, the US Treasury was able to continue T-bill paydowns through June, reducing the negative impact of heavy coupon issuance. Non-subscribers, click here for the rest of the story.
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We were able to use the data to foresee that, and the fact that the impact would be bullish. We also knew that the paydowns would end in July and that the resumption of T-bill issuance that would result in renewed withdrawals from the Fed’s RRP facility. That’s because money managers would switch from holding Fed RRPs back to holding T-bills as they were issued. The decline in the RRP fund would resume. Non-subscribers, click here for the rest of the story.
Given where I expected the RRPs outstanding to be at the end of June, last month I guessed that the facility would run dry in November or December. But the RRPs never got as high as I expected as money managers took some of the cash from the T-bill redemptions and used it to buy stocks and bonds instead of depositing it in the RRP facility. Non-subscribers, click here for the rest of the story.
Now bill supply is starting off July at a gargantuan level. Putting 2 and 2 together suggests that the RRP slush fund will run dry in October, even at the current revenue growth rate. Non-subscribers, click here for the rest of the story.
Here’s the illustrated story of how we got here, and what it means for your trading and investment strategy. Non-subscribers, click here for the rest of the story.
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