Next week won't be easy for the US market either? A wave of US Treasury issuance is coming, making liquidity woes even worse.

A massive wave of U.S. Treasury issuance is set to hit the market next week. Over the past week, technology giants have lost nearly $1 trillion in market value, dragging the Nasdaq to its biggest weekly drop in seven months. Concerns over high valuations, weak economic signals, and declining consumer confidence together set the backdrop for the current sell-off. Making matters worse, the U.S. Treasury plans to auction a total of $125 billion in Treasury securities of various maturities next week. Additionally, the market is expected to see around $40 billion in investment-grade corporate bond issuance. In a holiday-shortened trading week, such a concentrated supply of bonds will pose a major test to market liquidity. This upcoming wave of debt issuance comes at a time when a key liquidity indicator in the U.S. money market is flashing warnings. Due to the government shutdown, the Treasury has stockpiled cash, sharply draining market liquidity—an effect comparable to multiple rate hikes—which means any new demand for funds could amplify market volatility and risk. Huge amounts of U.S. Treasuries are coming: A test of market resilience According to the Treasury’s quarterly refunding plans, next week will see a raft of Treasury auctions. Specific issuance arrangements: - Monday: $58 billion of 3-year Treasury notes - Wednesday: $42 billion of 10-year Treasury notes - Thursday: $25 billion of 30-year Treasury bonds All these securities will settle on November 17. With Tuesday being the Veterans Day holiday and the bond market closed, this massive supply will be squeezed into a shortened trading week. Brian Smith, Deputy Assistant Secretary of the Treasury, said this issuance is intended to refinance maturing debt and raise about $26.8 billion in new funds from private investors. He also noted that the Treasury plans to maintain the current auction sizes for nominal coupon bonds and floating-rate notes at least until early 2026. In addition, Smith emphasized that the monthly auction sizes for 2-year to 30-year Treasuries will remain steady until January. The Treasury will rely on weekly Treasury bill auctions and cash management bills to deal with short-term borrowing fluctuations. The department plans to slightly reduce short-term Treasury issuance in December, with auction sizes expected to rise again by mid-January. "Invisible tightening": Liquidity alarm already sounding Next week’s Treasury issuance is drawing attention because it will impact an already fragile liquidity environment. As Wallstreetcn previously reported, several key indicators in the U.S. financial system have recently sounded alarms, showing the market faces an increasingly severe liquidity crisis. On October 31, the Secured Overnight Financing Rate (SOFR) surged 22 basis points, with its spread over the Fed’s excess reserve rate reaching its widest level since March 2020. According to ICAP data, this week general collateral repo rates have continued to swing violently above the Fed’s target range. The root cause of the liquidity crunch is the sharp expansion of the U.S. Treasury General Account (TGA) balance over the past three months. To prepare for a government shutdown, the Treasury has withdrawn over $700 billion in cash from the market, sending its TGA balance from about $300 billion since July to over $1 trillion. This action has directly brought Fed bank reserves down to their lowest point since early 2021, while foreign commercial banks’ cash assets have plunged over $300 billion in just four months. Analysts believe this scale of liquidity withdrawal has a tightening effect comparable to several rate hikes. Bank of America liquidity specialists Mark Cabana and Katie Craig previously warned that the deterioration in funding is showing dangerous self-reinforcing characteristics. If key indicators continue to worsen, it could trigger a chain reaction similar to the 2019 repo crisis. Risk Warning and Disclaimer The market has risks; investment needs caution. This article does not constitute individual investment advice, nor does it take into account the special investment goals, financial status, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk.