By Michael Scott
The refinancing announcement by the US Treasury is to offer a critical lifeline for high-risk assets, among them cryptocurrency. The refunding announcement will likely trigger a rally, mainly when the Treasury General Account (TGA) is maintained at or reduced below $750 billion.
The refining announcement details the 90-day borrowing requirements with the balance to hold in the TGA, which falls due on May 1. Observers are calling for a likely decline in the gross bond issuance for the initial time in two years, thereby delivering much-needed relief to the markets.
Market observers reflect on the past few weeks with the activity levels boring for the crypto community. Though the leading crypto by market value, Bitcoin has primarily been range-bound in the week.
Crypto Uptrend Looming After QRA
The observers consider that crypto could resume the broader uptrend in the following week following the quarterly refinancing announcement (QRA). The announcement by the US Treasury Secretary Janet Yellen seeks to deliver relief for the riskier assets.
Yellen detailed a three-month borrowing needs for the federal government that has proved pivotal to the post-COVID recovery from the record debt. It offers a reprieve from the elevated inflation and higher interest rates.
The announcement reveals the duration and size of the bond issuance alongside the balance held within the Treasury General Account (TGA). The debt issuance plan to stimulate markets via the yield channel.
The realization of higher bond issuance prompts a decline in bond prices, thereby lifting yields identified as risk-free rates. Its realization disincentivizes risk-taking in financial markets, and the reduced issuance creates the opposite effect.
The previous announcement by the Treasury on January 29 featured the prediction of $202 billion in net borrowing. The net marketable debt in the upcoming quarter would have $750 billion in TGA balance. Such presents a significant reduction from the initial quarter’s $760 billion net borrowing.
Maintaining TGA Balance Relief for Risky Assets
The financing needs are lower within the second quarter, mainly due to tax payments that fill the federal coffers. Saxo Bank hails the upcoming QRA as one to offer relief as the gross issuance is predicted to decline from the peak of $7.2 trillion in 2022.
Althea Spinozzi, who oversees fixed income strategy in Saxo Bank, illustrated that the upcoming bills and coupon redemptions coinciding with Treasury financing estimates will trigger a decline in the gross issuance of marketable treasury securities. The decline is a critical turnaround that breaks the uptrend since 2022’s second quarter.
Spinozzi illustrated that the market’s focus is shifting towards the announcement clarifying the TGA level. Besides meeting the payments, TGA is comprised of the Federal Reserve (Fed) operating account to facilitate tax revenue collection and hold securities sale proceeds, custom duties, and public debt receipts.
TGA involves the liability captured on the Fed’s balance sheet, which mandates matching by assets. Draining the TGA balance involves moving money to benefit businesses and individuals’ accounts.
TGA Balance Key to Accelerate Crypto Bull Run
Draining the TGA balance bolsters reserves that are accessible to commercial banks. It prompts the banks to boost lending, yielding monetary easing across the financial markets and broader economy.
The debt ceiling drama witnessed at the onset of 2023 prompted the Treasury to drain the TGA balance. The move comprised the extraordinary initiatives deployed to guarantee the government’s functioning. Its deployment made risk assets, including crypto, realize the bullish trajectory.
Spinozzi projects the risk assets to rally, mainly when QRA retains the $750 billion TGA target or lower. It implies that maintaining the $750 billion rules out the injection of funds into the economy, thereby boosting economic activity. Such is bound to translate to bullish sentiment in the risky assets, including stocks, crypto, and lower-rated corporate bonds.
If the Treasury raised the TGA target above the $750 billion estimates would imply the government will hold more cash. The outcome could become an adversity for the risk assets.
Crypto exchange BitMEX chief executive Arthur Hayes reiterated the prediction for pre-halving weakness. The chief investment executive at Maelstrom said that Treasury could halt the issuance of long-term Treasuries. Such would involve draining the TGA balance presently at $1 trillion.
Hayes clarified that the Treasury could issue additional short-term bills or unlock liquidity via the reverse repurchase agreement (RRP). Combining both could cause a liquidity deluge. The occurrence of the above options could re-accelerate the crypto bull market.