Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Well, those are the words Treasury used, but "billions" in a very short time may be called a "flood" - any way, I did that here*. Treasury had drawn down balances to the extent that it was issuing 3-day, then 1-day, T-Bills pre-debt-ceiling resolution. Much of Treasury balances will be restored by 6/14/23.
Looks like the bond market will take a hit as a consequence. Gains made this year could be in jeopardy. Great...
I agree with Derf's comments above that "flood" is not an accurate descriptive term. This statement, "Treasury plans to increase issuance of Treasury bills to continue financing the government and to gradually rebuild the cash balance over time to a level more consistent with Treasury’s cash balance policy. Initial increases in bill issuance will be focused on shorter-tenor benchmark securities and cash management bills (CMBs), including the introduction of a regular weekly 6-week CMB (the first of which will be announced on June 8)." I see phrases like "gradually rebuild cash balance" and "initial increases...will be focused on shorter-tenor...securities", as suggestive of slow and careful actions, not a "flooding" of issuance of Treasuries. I expect both Treasuries and CDs to reflect these more gradual increases, to not spook the market, and not lead to an unnecessary recession.
I will exploit this Treasury issuance related yield rise + from potential Fed hawkish-pause (hold at June FOMC but may be hike at July FOMC) to continue to roll T-Bills. This is still the tail end of Fed hikes.
I won't be adding to my small direct-HY exposure or indirect-HY exposure via multisector bond fund. That would be during recession, if/when it comes.
Same here to take advantages of higher yields as my maturing T bills and CDs in coming months in my cash buckets. Have been adding to other intermediate term and BL bond funds.
Now a $1 trillion tsunami of high-quality government paper is slated to hit markets before September, at a time when Michele warns the Fed is already draining $95 billion in liquidity—the oxygen that fuels asset prices—every month through quantitative tightening.
Students of seismic events, and informed residents of coastal areas, will remember that tsunamis are preceded by water calmly receding from the coast line.
The article is actually about Bob Michele's view that:
“This [regional bank failures] does remind me an awful lot of that March-to-June period in 2008,” Michele told CNBC in an interview on Friday, citing the three-month rally that followed the Bear deal. “The markets viewed it as: there was a crisis, there was a policy response and the crisis is solved.”
Who he? I didn't know either.
Bob Michele, who is responsible for managing $700 billion in assets for the world’s most valuable bank [JP Morgan], believes there are too many current parallels to the 2008 global financial crisis to simply dismiss the idea of a repeat out of hand.
He also sees problems in commercial real estate.
More than $1.4 trillion in U.S. CRE loans are due to mature by 2027, with $270 billion alone coming due this year, according to real estate data provider Trepp. Much of this debt will have to be rolled over at higher rates.
“There are a lot of companies sitting on very low-cost funding,” Michele said. “When they go to refinance, it will double, triple or they won’t be able to [roll it over] and they’ll have to go through some sort of restructuring or default.”
Posters may be distracted by the use of "gradual" (by Treasury; I tend not to take government statements at face value), "flood" (by me & others), "tsunami (by @WABAC and others).
But the actionable take is that cumulative effects of the Fed (watch the FOMC announcement today) and large Treasury issuances will be to drain financial liquidity. This will keep T-Bill rates high for now. So, for me, the debate whether to continue T-Bill rolls or move that into higher duration bond has been resolved - I will keep rolling 3-mo T-Bills for now.
There is also a nearby thread on "Roll Breakeven Yield" to decide on things like whether to buy 3-mo now and roll, or just buy 6-mo now.
I continue to use MM which pays 4.9-5% compared to 3-6 months treasuries at 5.2-5.3%. The difference is insignificant. MM lets me trade in/out of funds very easily.
I’ve been rolling my 3,6,12-month t-bills while still holding (for me) considerable cash in a VG money market settlement account. It made sense to me given that t-bills are not subject to state tax and I live in a high tax state (NY).
Comments
*No originality is claimed as I have seen that term used at Twitter, by Bloomberg, etc. https://www.bloomberg.com/news/articles/2023-06-05/treasury-s-flood-of-bill-issuance-is-a-new-headache-for-banks#xj4y7vzkg
https://twitter.com/SquawkCNBC/status/1666766270052679680
@Crash, TIPS should be affected to the extent of the correlation between nominal and real rates, but no direct impact.
I won't be adding to my small direct-HY exposure or indirect-HY exposure via multisector bond fund. That would be during recession, if/when it comes.
The article is actually about Bob Michele's view that: Who he? I didn't know either. He also sees problems in commercial real estate.
But the actionable take is that cumulative effects of the Fed (watch the FOMC announcement today) and large Treasury issuances will be to drain financial liquidity. This will keep T-Bill rates high for now. So, for me, the debate whether to continue T-Bill rolls or move that into higher duration bond has been resolved - I will keep rolling 3-mo T-Bills for now.
There is also a nearby thread on "Roll Breakeven Yield" to decide on things like whether to buy 3-mo now and roll, or just buy 6-mo now.