The Next Wave…

As was well-flagged over the past weeks by Repo market activity, the Active Treasury Issuance (ATI)* of government debt, combined with the increased use of US Treasuries as primary collateral by a broader set of market participants, has now prompted the next wave of government-centred (not market-clearing) solutions.

The reserve management program, as announced by the US Federal Reserve in its meeting release today, will inject up to $40 billion per month in Reserves as its Reserve balances fall to $3 TRILLION; from ~$2.3 trillion prior to the last mini-2023 funding crisis!!

Think of it like ‘helping’ the patient get off pain killers by giving them another hit of pain killers. Keep masking the problem and managing only the symptoms.

*A reminder on ATI (paper):
ATI: Activist Treasury Issuance and the Tug-of-War Over Monetary Policy, Hudson Bay Capital, Stephen Miran, Senior Strategist, Nouriel Roubini, Senior Advisor, July 2024.