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China Market Meltdown Couldn’t Come At Worse Time

Will the sell off be a one day event? Liquidity thinks not.

The bad sentiment couldn’t have come at a more precarious time. The Treasury is borrowing heavily this week with $28.7B in net new borrowing settling tomorrow and Thursday. In addition, we can expect a sizable CMB (Cash Management Bill) announcement either today or tomorrow.

Even with all that borrowing, the Treasury will come up short about $20B this week. The size of the CMB is expected to be about $30B. That would push total settlements this week up to $58B+.

The Fed has already done some heavy lifting by bumping the repo pool to $37.5B and also adding $1.878B via a coupon pass yesterday.

If global liquidity (i.e. China) stops pouring into the US, well, that would be a real liquidity crunch.

On the brighter side, the heavy liquidity pressures currently in the pipeline should only last for a few more…..ahem…. weeks.

So the Pavlovian market dogs should be ready for a nice bounce somewhere around the third week in April.

With the current fog though, who can see further ahead than a few hours.

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