Not that we want any more scary statistics, but here’s one which is perhaps price watching. From the Brave browser’s AI summarizer:
Government liquidity index
The federal government liquidity index is a metric that measures the convenience or difficulty of trading in government securities, similar to U.S. Treasury bonds. It’s a gauge of deviations in yields from a fair-value model, indicating the extent of liquidity available in the market.
Measures of liquidity within the Treasury market are near crisis levels, raising concerns about underlying fragility within the functioning of the market. This may result in historically large every day swings in yields, making it difficult for traders to perform trades.
Government Intervention
In response to those concerns, the U.S. Treasury has announced that it’ll begin commonly buying back its bonds starting May 29, for the primary time in over twenty years. This move is aimed toward improving liquidity available in the market and reducing the chance of market mayhem.
The liquidity index for US government securities is deteriorating significantly, now at its worst levels because the European debt crisis in 2011.
Notably, it’s already more severe than the environment throughout the Covid crash in 2020.
What’s much more alarming today is that that is all happening while the US currently has one among the biggest rate of interest differentials in comparison with other developed economies in history, yet liquidity appears to be eroding.
This example is setting the stage for the US to experience its own “Bank of England moment” as we approach elections.
In September 2022, UK yields saw one among the steepest increases in history after the announcement of £45 billion in unfunded tax cuts, which raised concerns over increased borrowing needs and debt sustainability.
Does that scenario sound familiar to US policymakers?
We face one among the worst fiscal imbalances in history amidst an inflationary environment with declining demand from foreign central banks relative to Treasury issuances.
At the identical time, 60/40 portfolios are starting to understand the necessity to shift back to other defensive allocations — with gold and other hard assets potentially playing a vital role as other haven alternatives.
Treat the Government Liquidity Index as one data point amongst many, but respect the predictive value implied by the above chart. Between spreading war, an unpredictable election, and global de-dollarization, we’re headed for potentially chaotic times. And this indicator is an indication of where the chaos might begin.
Put one other way, in case you aren’t already stacking and prepping, it is advisable to start. See the Table of Contents for backgrounders and actionable advice.