US government securities liquidity at worst since 2011, surpassing 2020’s Covid crash.

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The liquidity index for US government securities is deteriorating significantly, now at its worst levels since the European debt crisis in 2011.

Notably, it’s already more severe than the environment during the Covid crash in 2020.

What is even more alarming today is that this is all happening while the US currently has one of the largest interest rate differentials compared to other developed economies in history, yet liquidity appears to be eroding.

This situation is setting the stage for the US to experience its own “Bank of England moment” as we approach elections.

In September 2022, UK yields saw one of the steepest increases in history after the announcement of £45 billion in unfunded tax cuts, which raised concerns over increased borrowing needs and debt sustainability.

Does that scenario sound familiar to US policymakers?

We are facing one of the worst fiscal imbalances in history amidst an inflationary environment with declining demand from foreign central banks relative to Treasury issuances.

At the same time, 60/40 portfolios are starting to realize the need to shift back to other defensive allocations — with gold and other hard assets potentially playing an important role as other haven alternatives.



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