Treasury issuance is collapsing. A liquidity crisis is coming!

So here's what's happening. There is a massive Treasury shortage because of the austerity, debt ceiling, and the huge reduction in the deficit. We talked about the liquidity crisis that hit the banking system a few weeks ago. The Fed had to inject nearly $700 billion of Treasuries into the market in a single week because of a shortage.

Look at these tables. Last fiscal year (just concluded, Sep 30) the Treasury redeemed $60.4 trillion of Treasuries while it issued $60.8 trillion. That was a mere, $400 billion of net new supply.

FY 2015

Now look at this...

FY 2014

In contrast, look at fiscal year 2014. Treasury redeemed $68.7 trillion, but it issued $69.8 trillion for a net addition of $1.1 trillion.

Issuance has collapsed and it's about to collapse further because we're hitting the debt ceiling. The Fed will be forced to conduct massive repo's, perhaps exhausting its holdings quickly.