Debt Rattle October 4 2015
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Russell Lee Photo booth at fiesta, Taos, New Mexico Jul 1940 • Markets Are Back At Panic Levels, Says Credit Suisse (MarketWatch) • Post-QE “S&P Shoul
[See the full post at: Debt Rattle October 4 2015]On Thursday $62bn of Treasury bills expired and so were paid off. Typically the Treasury just issues new ones and holders just buy them, it is called rolling over. Now however as the borrowing limit approaches the Treasury is constrained from issuing more. When bills expire like this and are not rolled over the cash must go somewhere else. The holders of those bills are the banking giants and their big customers. So if your wondering why the market soared on Friday part of the reason was that $62bn needed a home and obviously stocks became the place.
This dynamic of bill and even note paydowns will periodically flood the accounts of the big boys with no home until the debt limit is raised and the Treasury can begin to borrow more again.
All in all the slow down and then possible freeze on Treasury borrowing is a positive for financial markets as the world, which is desperate for more Treasury paper to buy since it is still the worlds benchmark financial instrument the very best collateral, will have to buy something else. Stocks typically or maybe longer term Treasury paper, or corporate debt or derivatives of various flavors. Of course everyone will be wringing their hands over how the debt limit will hurt ‘confidence’ but confidence doesn’t move markets, money does.
In the unlikely event that the debt ceiling theater stretches out most all Treasury bills will be paid down and the dynamic of cash needing a new home will end.
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