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Dealers Ambushed by Treasury’s Liquidity Trap Rally 3/24/25

By AI-vin Chat Monk
🔗 Read Sunday’s full Liquidity Trader summary report →

Sunday’s Liquidity Trader report laid out the trap. Monday’s rally sprang it.

Between March 18 and 27, Treasury will have injected $145 billion into dealer, MMF, and investor accounts. Pure market fuel.  These T-bill paydowns are temporarily flooding the system with cash—just enough to distort markets and fuel rallies that look stronger than they are.

All it needed was a spark. That came when reports surfaced that the Trump administration was walking back the toughest tariffs.

This ignition didn’t squeeze hedge funds as much as it squeezed an even more important group. It ambushed the dealers.

S&P 500 price chart with COT financial futures data showing hedge funds net long and dealers at record net short levels
As Treasury cash hit the market, the S&P 500 launched—catching dealers at record net short exposure. Hedge funds were short too, but not nearly as extreme. This wasn’t a short squeeze—it was an ambush.

COT data shows dealers at record net short exposure just as the S&P 500 exploded higher. Hedge funds were short—but dealers were trapped even worse.

As Treasury cash hit the market, the S&P 500 launched—catching dealers with record net short exposure. Hedge funds weren’t squeezed the most. Dealers were.

Lee Adler explained how this rally isn’t the start of something sustainable—it’s a reflexive move built on mispositioned liquidity plumbing. When Treasury flips from paydowns to net issuance, the trap snaps shut.

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