Thread by @LynAldenContact

Unless Yellen changes plans, then during the next several months, over $1T from the Treasury General Account is going to pour into bank reserves.

Despite massive T-bill issuance, there is actually a shortage of T-bills out there now relative to capital (complete opposite problem of late-2019 repo spike).

Short end of the Treasury curve is falling due to collateral shortage, while long end is rising.

For example, after the 2019 repo spike, the problem was too many t-bills vs cash. The Fed's transition from repo support to outright QE (T-bill buying) in was predictable a couple weeks in advance.

https://twitter.com/LynAldenContact/status/1176887065390276610

But ironically now it's the opposite issue coming up.

That's not because the short end of the Treasury market is expecting deflation as some are suggesting (quite the opposite, by most metrics), but rather it's more mechanical in nature.

If Fed is proactive, they might try to do another Operation Twist, where they sell some short-end Treasuries to provide the needed collateral and buy additional long-end Treasuries, within the context of their otherwise automatic $80B/month Treasury buying plan.

Otherwise, we could see T-bill rates go lower or even mildly negative in the months ahead as T-bond rates continue to push up higher, and cause financial plumbing issues.

Lots of moving parts here because a TGA drawdown of this size would be a first.