US Liquidity & Debt Watch: Yellen to decide the QT tapering timing TOMORROW?
Yellen holds the keys to an early end to QT. At the surface, she holds all the incentives to get the QT tapering process started soon. Will she deliberately provoke the end of QT tomorrow?
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Yesterday, the US Treasury revealed the issuance targets for Q1 and Q2. The net addition to marketable debt is $760 billion for Q1. While this is a substantial amount, it's $55 billion less than the October estimate for Q1 ($816 billion). In Q2 they expect to add $202 billion, which is on the soft side of Q2 2023.
Tomorrow, the US Treasury will reveals the details of the issuance ahead, including the distribution between bonds and bills. Given that FOMC member Lorie Logan recently said that:
“… given the rapid decline of the ON RRP, I think it’s appropriate to consider the parameters that will guide a decision to slow the runoff of our assets. In my view, we should slow the pace of runoff as ON RRP balances approach a low level.”
It basically means that Yellen can decide the timing of the tapering of QT tomorrow. Will she actively provoke an early end to the balance sheet drawdown of the Fed to try and underpin markets ahead of the election?
Let’s have a look at the details on how to trade it and why this is likely going to impact decision-making from the Fed already at the March meeting.
Chart 1: The new net issuance expectations
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