US Treasury

Treasury Secretary Steven Mnuchin had a busy day today: shortly after warning once again that a US debt ceiling deal has to be done by late September or else the country would run out of cash and suffer a technical default, roughly around the time he hinted that Trump may keep carried interest tax breaks for some firms that create jobs (while eliminating it for hedge fund managers), the former hedge fund manager and Hollywood producer paid a rare official visit to Fort Knox to check out the nation’s gold stash on Monday, while - as Bloomberg put it - keeping an open mind for future film pro

One month ago, Morgan Stanley's chief cross-asset strategist looked at the current state of the market - "the S&P 500, Russell 2000 and NASDAQ have hit all-time highs. Volatility has plunged back down near all-time lows. Credit is tighter and yields have been stable" - and asked "what rattles this market. What breaks the egg?"

His answer was five-fold, including valuations, inflation, geopolitics and China, but the biggest concern was what is coming in just one month on the US legislative docket:

The US Treasury Bill market remains notably inverted around the uncertain timing of the US debt limit debacle.

As Bloomberg reports, while Treasury bills maturing in October continue underperforming against November and December securities, the market has a murky view on the drop-dead date for the U.S. debt ceiling.

At the start of last week, concerns shifted to early October after the Treasury said in its 3Q refunding statement that it expects to be able to fund the govt through the end of September.

 

In the first warning sign that the US Treasury is burning through more cash than previously expected, at 3pm today the Treasury Department announced that in its latest forecast of end-of-September cash balance it anticipated only $60 billion of cash on hand, nearly half the $115 billion it forecast in its previous report in May, according to the Department’s marketable borrowing estimates.  The treasury also expects to borrow $96 billion in net marketable debt in the current quarter, down from $98 billion forecast previously.

On Thursday morning the CBO released a surprisingly upbeat assessment of Donald Trump's proposed budget, calculating that it would cut the cumulative US deficit by 30% over the next decade, preventing the US debt from spiraling out of control (even further).