by Chris Black
Two things suggest yes:
BofA (t.me/DTpapers/121): “loads of cash…our best guess where it ends up in 2024…3B’s of Bonds, Bullion (gold) & Breadth (stocks); but investors first need recession + Fed cuts to ‘sell cash,’ ignite new bulls.”
In other words, BofA believes only rate cuts can unleash the money locked up in MMFs and into the stock market.
Also, note that the Treasury may be considering raising the share of bills (USTs maturing in less than a year) meaningfully above the historical 20% limit (home.treasury.gov/system/files/221/TBACCharge2Q42021.pdf).
In August, its refunding meeting indicated that it would allow bills to comprise 22.4% (home.treasury.gov/news/press-releases/jy1670) of its marketable debt for “some time.”
It noted increasing financing needs and preferred a higher share of bills over a rapid issuance of coupons (payments on USTs maturing in a year or more), which they prefer to issue in a regular and predictable manner (www.newyorkfed.org/research/epr/07v13n1/0703garb.html).
In addition, for its November refunding meeting, the Treasury commissioned a study (home.treasury.gov/system/files/221/Dealer-Agenda-Nov-2023.pdf) on the issuance of a new benchmark bill and the market’s overall capacity to absorb bills.
Both developments suggest the Treasury may be considering significantly ramping up its bill issuance, which would limit the amount of coupons the Treasury market has to digest and temporarily quell issues related to illiquidity.
MMFs have $1.1t invested in the RRP facility and have shown a clear willingness (www.newyorkfed.org/newsevents/speeches/2023/per231010) to shift out of the RRP and into bills for a slight pick-up in yield.
Post-debt ceiling resolution, Treasury issued close to a trillion in bills that was largely taken down by MMFs .
The result was a steady decline in the RRP, which has a bullish impact on stocks.
The 2024 deficit is estimated to be around $1.5t (home.treasury.gov/system/files/221/TreasuryPresentationToTBACQ32023.pdf) and the Treasury has guided towards raising coupon sizes (home.treasury.gov/news/press-releases/jy1671) over the next few quarters to meet its financing needs, but with this policy change, they could maintain or even reduce coupon sizes and instead issue more bills.
This can continue until the Treasury market’s capacity to absorb bills is exhausted.
But that is comfortably beyond November 2024.