US TSYS/SUPPLY: Issuance Deep Dive: TGA Rebuild To Have Large Impact On Reserves
Jun-09 10:43
Our monthly UST Issuance Deep Dive looks at measures Treasury will take to replenish its cash holdings post-debt limit crisis, and scenarios for the impact on overall liquidity in the US financial system.
- Treasury’s net debt issuance increase will be made up entirely of bills, and analyst expectations are that the total will run up to $800B-1T over the 4 months between June/Jul/Aug/Sep.
- The impact on the financial system will depend on the split in takeup of these bills, which will mostly derive from bank reserves and the Fed's overnight reverse repo facility.
- The rebuild of Treasury cash will have an impact similar to quantitative tightening, and It's not hard to see a situation in which bank reserves potentially become "scarce" as early as end-September.
- We look at sell-side analysts' varied expectations for the months ahead, and the possible fallout for liquidity, rates, and financial markets.
- We also review May's strong auction results, and provide our updated issuance calendar.
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STIR: BLOCK, Jul'23 SOFR Call Fly
May-10 10:40
- 2,500 SFRN3 95.12/95.35/95.62 call flys, 2.0 ref 95.205 at 0632:36ET. Overnight cross included 5,000 SFRU3 call fly on the same strikes at 1.25.
US: No Progress In Debt Ceiling Talks, But Another Meeting Of Key Figures Friday
May-10 10:39
As was broadly expected, there appears to have been little progress made on 9 May at the meeting between President Biden, Speaker Kevin McCarthy (R-CA) and other senior Congressional figures regarding the looming debt ceiling.
- Punchbowl News reports that "The Hill staffers and Biden administration officials huddling over the next two days aren’t even on the same page when it comes to what they’re discussing. Democrats believe they are negotiating a spending agreement outside the context of the debt limit. Republicans believe they’re negotiating a debt-limit deal with a spending-cut component."
- Politico notes, though, that " beneath the enduring stalemate was an only-in-Washington bright spot: Nobody walked out of the meeting, or away from the negotiations altogether."
- Following the meeting of aides over 10 and 11 May, Biden, McCarthy, Senate majority leader Chuck Schumer (D-NY), Senate minority leader Mitch McConnell (R-KY) and House minority leader Hakeem Jeffries (D-NY) will meet again on Friday 12 May.
- Following the meeting, Biden floated the prospect of using the 14th Amendment to ensure a default is avoided. Some legal scholars have stated they believe that the 14th amendment makes it unconstitutional for the US not to pay its debt. However, pursuing would likely end up in a legal quagmire running well past the 'X date' this summer.
OUTLOOK: Price Signal Summary - WTI Gains Considered Corrective
May-10 10:36
- On the commodity front, Gold remains in an uptrend despite last Friday’s move lower. The yellow metal has breached resistance at $2048.7, the Apr 13 high, to confirm a resumption of the broader bull cycle. This maintains the bullish price sequence of higher highs and higher lows and moving average studies are in a bull-mode set-up. The focus is on $2070.4, the Mar 8 2022 high ahead of the all-time high at $2075.5 on Aug 7 2020 Key support is 1969.3, the Apr 19 low.
- In the oil space, WTI futures remain bearish despite the strong recovery from $63.64, the May 4 low. The trend condition was oversold last week and the recovery is allowing this to unwind. Initial resistance is at $73.93, the Apr 28 low ahead of $76.92, the Apr 28 high. On the downside, the recent print below $64.58, the Mar 20 low and a key support, reinforces a bearish theme. A clear break of it would confirm a resumption of the broader downtrend.
