SSIM's Goldthwait: Plenty of Cash
State Street Investment Management's latest "Monthly Cash Review-USD" is titled, "A Hawk at the Door." After discussing the Fed, the piece states, "From a markets perspective, January, as usual, 'came in hot.' Flows were positive and the maturity schedule is heavy, pushing technicals tighter. Spreads have rallied across fixed and float, with fixed looking a bit too proud of itself at 3–4 bps tighter. There's not much value in extending out the curve unless you enjoy chasing things that don't want to be caught. Most investors are holding back, waiting for February to offer better levels, while fund durations naturally roll down as everyone resists the urge to buy at today's highs." Author Will Goldthwait writes, "Despite geopolitical theatrics -- Greenland resolutions, Canadian tariffs, and the usual pre midterm political fireworks -- there's still plenty of cash sloshing around. It's a seller's market, plain and simple. And with the administration trying to keep the music playing through the midterms, volatility may show up, but liquidity is not exactly in short supply." He says, "On the funding side, Q1 looks calm. The money market system capacity is expanding as global systemically important bank balance sheets rebound from their Q4 contortions, and banks may opt into lighter supplementary leverage ratio requirements. The Fed is gobbling up T bills at a quick clip through Reserve Management Purchases -- about $40B a month into April, before slowing to something closer to $25B. Add another $15B from mortgage-backed securities reinvestments, and you've got a central bank that's basically the MVP of the T bill market." The SSIM update adds, "Treasury's April tax haul may lift the Treasury General Account to roughly $1.1 trillion, though the timing of payments and refunds is anyone's guess. Even with the Fed offsetting some of the drain, reserves could drift down toward $2.8 trillion. Net T bill supply for the year sits around $700B, with the Fed expected to buy about $500B of that, leaving the private market an easy $200B to absorb -- unless fiscal 'surprises' show up. Tariff refunds could add $200B. Stimulus checks -- because elections -- could add another $300–600B. Pick your adventure."
