Wrightson ICAP: "Substantial Fiscal Injection In The Months Ahead"

Wrightson ICAP isn't formally adjusting its US supply forecasts until the fiscal path becomes clear, but after recent developments, "the odds now favor a substantial fiscal injection in the months ahead", with the Oct-Dec budget deficit "anywhere from our original baseline of less than 10% of GDP at an annualized rate to more than 30%" depending on the outcome of negotiations.

• The hypothetical scenario: the two sides split their differences at $1.9T, with Treasury getting "as much as $1.2 trillion of that out the door by the end of the year".
• Adding that $1.2T to Q4 cash needs: Wrightson ICAP sees ~2/3 (around $700B) financed through additional bill issuance and ~1/3 via drawdown of Tsy's cash balance. This would "not require large adjustments in any one [bill] maturity", with 4-/6-/8-wk offerings increased by $15B, and $10B for 15+weeks - with Tsy raising $80B+ by early Nov (vs paying down modest amounts as prev expected).
• Re cash balance, Wrightson ICAP sees a large fiscal package pushing Tsy's year-end cash balance to $1T, vs $1.78T as of Sep 30, and $1.36T projected. Much of that could happen in late Oct as the White House prioritizes sending $1,200 rebate checks to individuals before election day, etc.
• With the ramp-up in bill issuance being slower (ie over the course of Q4) than the spending of the Treasury's cash distributions, "the build-up in money fund balances and bank deposits fueled by federal largesse is likely to outstrip the rebound in the supply of bills over the first half of this calendar quarter. By the second half of Q4, the financing burden associated with rising Treasury borrowing should start to catch up with the pace of federal cash infusions."