Market Liquidity Is About To Change Dramatically

追加: 2026-05-23

[00:00:00]Liquidity flows have been uh evolving in the marketplace for some time now, especially since uh the reverse repo facility has basically hit its lower bound. And statistically speaking, what I've done and for people who have been following this channel for a long time and certainly members of the paid tier know, I've been keeping statistics uh that show what happens to the market uh specifically around Treasury bill issuance. And I started to notice a pattern in the late fall that suggested or showed that on Treasury bill settlement dates, you you tended to get a negative market reaction specifically when there was a lot of T- billills being issued. And so I started to keep statistics on this. Um and what the data shows for the most part is that over the last you know uh 143 days or so there have been uh 30 instances where T bills have settled with more uh issuance than being matured and there have been 28 days that have shown uh that the Treasury has paying down those T bills meaning that there were more T bills uh maturing than being issued. And so what we've come away with is a pretty interesting dynamic in the marketplace.

[00:01:17]I thought we would start with T bill settlements first only because that's when I started to track the data and number two that's where we are right now. Um here I've also in inserted a chart of the reverse repo facility kind of showing why it is that I chose the time frame to start tracking this. If you've noticed that the the TG the reverse repo facility peaked at around$ two and a half trillion dollars back in April of 2023 and then was subsequently drained uh and hitting the effective lower bound of it sometime in October or maybe late September of 2025 meaning there wasn't really sufficient liquidity and longer in the marketplace to offset the amount of issuance Treasury was issu uh the amount of Treasury bills being issued. Effectively what led to the draining of this was treasury bill issuance and uh as the as the reverse repo facility hit the lower bound basically the the liquidity needed to come from other places. And so I began to observe during this period of time that you would see specifically on days when treasury bill issuance was increasing um the market performed a little bit more poorly. And so what we walked away was with the statistics of um out of 30 days only uh nine of those 30 treasury bill settlement dates actually finished positive uh with a cumulative return of -3 1.5%. The average when the market was up on a settlement date was only 47 basis points versus an average when down was nearly 90 basis points. Uh there were 113 days where there were no settlements and out of those 113 days 62% uh were higher. 70 out of 113 for a cumulative return of nearly 26%.

[00:03:11]The average went up was nearly 65 basis points and the average went down was nearly 52 basis points. Uh and so what this kind of I think demonstrates to me is that on the uh 30 days where there were settlements, the market did considerably was considerably weaker than on the days where there were no settlements. Um when we look at it from another perspective of payown dates, uh what we actually see here is that the market was up nearly 64% of the time there were more bills uh maturing than being issued. Meaning money was effectively being put into the E was being put into the marketplace or returned uh for a cumulative uh advance of about 6% uh verse with an average advance of about 60 basis points and average decline of 47 basis points versus the other 115 days where the market was up 53% of the time for a cumulative return of only 2.6%.

[00:04:14]The average went up was about 65 basis points but the average went down was nearly 68 basis points. So clearly again market did better when there were more bills being uh matured than issued. And so this is uh becomes a little more startling when you start looking at some other factors. This is Bitcoin. Notice that on days when there's T- billill payowns, uh, Bitcoin was up almost 54% of the time versus other days being down nearly 46% of the time. Uh, cumulative return of 13 1.5%. Other days, a cumulative return of nearly negative 42%.

[00:04:53]Average went up 1.9%, average went down 1.2%.

[00:04:58]On the other days, average went up 1.7%, average went down 1.9%.

[00:05:05]It's materially worse when you look at it on settlement days where there's more bills being issued. Uh, only up 26% for a cumulative return of -42.7%.

[00:05:17]Average went up 98 basis points. Average went down nearly 2.8%.

[00:05:24]177 other days was up nearly 50% of the time. Cumulative return of 15.2%.

[00:05:31]Average went up 1.8% versus an average went down of 1.6%.

[00:05:36]And you can run through this through various other formulations. Um this is the VIX index also showing you uh you know what happens on treasury bill settlement dates. Clearly what we see is um you know big bit much more volatility in the market than on other days versus on pay down days when there's cash being added you can see that volatility is dampened pretty significantly uh and it's a very different sort of looking picture. You can even do this by sector and see that you know software for example doesn't perform didn't perform well whether they were being paid down or uh a non-payown dates but was clear is that on the uh pay down dates you did better than what you did on settlement dates when on settlement dates it was a pure uh it was purely a weak period of time and again uh what this what's interesting is that there are certain sectors of the market that clearly do worse And there are clearly certain sectors of the market that do better. In fact, the staples are one group that has performed fairly well, meaning it's outperformed during settlement dates and pay down dates and it hasn't really made much of a difference for Staples. And it's interesting also when you look at things like the bond market TLT um down on both payment dates and settle and non-payown dates and a little bit better on T- billill settlement dates versus other days. So uh an interesting sort of cross cross movements that we're seeing in different parts of the marketplace based on this.

[00:07:19]And why this is important right now is because right now we're in a period where we're in settlement p where we're in a period where there's more bills being issued than uh maturing. And this is particularly important because when you look at the calendar coming for this week um you can see 43 billion in settlements on Tuesday, another 15 billion in settlements on the 28th. We also do have some coupon settlements as well. nearly 47 billion uh 47 billion on the 29th and another 68 billion on July uh on June 2nd. Overall, I mean you can kind of get a sense of what's been happening here. This was uh net settle this was a payown period here in late the end of the year. Then we went into a period of net issuance in February and March and then around tax season we went into a period of payowns and now we're entering a period of uh new issuance.

[00:08:15]Then sometime in the middle of June, call it the June 15th date, which is when the next tax season is, you'll actually see this flip back to payowns again. So, right now, we're in a period where we're in uh settlements, new new bills being issued. Then we'll go into about a week or two period of payowns.

[00:08:35]And then going into July and the second half of the year, we're going to enter a heavy period of new issuance of T bills, which is probably going to look more like what we saw during the March uh February March period than what we saw during uh any other period of time. And so that could really become a period in time where we see significant uh weakness in risk assets and cryptocurrencies and things of that nature that are heavily dependent upon liquidity flows and uh specifically even maybe some of the sectors where we've seen some heavy weakness before. Um again I've been going through this and watching this now for a few months and I have you know tried to keep everyone updated as these dynamics have changed.

[00:09:22]So, uh, right now we're entering a period or we're in the middle of a period of time where we're likely to see, uh, more liquidity leave the marketplace at least through the middle of June. Maybe we'll get a little bit of a lull or a break, uh, during that period around the June 15th tax day, and then we're going to flip back into heavy issuance again towards the end of June and certainly as we move through July and August. So, these are uh important little caveats I think that are important to keep aware of as we go through the second half as we start to enter the second half of 2026. I think it's also worth pointing out that even though this week you did actually see um the market rise on Thursday and Friday, they were within the norms, meaning that you know we only were up 17 basis points on Thursday and we were only up 37 basis points on Friday. And uh when we have gone up, we have on average gone up by about 47 basis points. So I would say that even though these two days uh we didn't see the market go down, they were within the norms and they were certainly weaker than what we would have seen on a non-settlement average day. So I think that that's important to, you know, kind of keep in mind and to potentially frame. It's not necessarily that the market should always go down because we know it's not always going to go down.

[00:10:47]It only goes down about 70% of the time on a settlement date based on these statistics. But what's important to know is that even on the days when the market is up, it tends to not be as strong as days when there is no settlement. I think that's also part of the framing in this um is to remember that it just means it may not be as strong of a period of time. So for example, you know, Tuesdays and Thursday this week, you have two Treasury bill settlement dates. Doesn't mean that the market has to be down on those two dates. It just would suggest we see a relatively smaller move in the marketplace than what we're perhaps used to. And if the market were to be down, we would expect it to be down more than what we would expect to see on a non-settlement date.

[00:11:32]Anyway, I am running I I do have more information in my subscription service area on YouTube and in Substack. I am running a little bit of a Memorial Day sale there. Uh, please remember to subscribe to this channel, like this video, share it with your friends, and I'll be back with next week with something else to look at. Take care.

[00:11:51]Bye.