A $1.9 Trillion Quarter for Bond Buyers to Digest

(Bloomberg) --

The U.S. Treasury is auctioning a dizzying amount of bonds to pay for the government’s economic relief efforts. Will the market be able to digest this mountain of supply? Wells Fargo Securities macro strategist Zachary Griffiths joins the “What Goes Up” podcast to discuss.

Some highlights of the conversation:

“When you’re talking about $1.9 trillion of issuance of any type of security in a single quarter, you have to ask ‘is there a market for it?’ And when we think about what’s happened recently with T-bill issuance, which has already been north of a trillion over the past month alone, we look at where demand comes from. And if you look at inflows into government-only money market funds over roughly the past eight weeks, inflows into those types of funds that do a lot of investing in T bills, it’s been over a trillion as well. So the demand is there, fortunately, for Treasury who needs to raise these funds extremely quickly for these emergency lending programs.”

But how long will that demand last?

“Going forward, we think as some risk appetite comes back into the market, you see credit spreads have fallen, equities have risen, people are getting a little more comfortable and a little more optimistic with some states reopening … you’re starting to see some of that optimism and as people move into somewhat riskier assets, whether it even be just prime money market funds rather than  government money market funds, we think that backstop of demand is going to come off a bit and that’s when the Fed is going to need to come in and start shifting its asset purchases, which it’s been ratcheting down quite a bit. We think it’ll have to involve Treasury bills pretty soon.” 

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