Thursday afternoon means one thing, and that’s the Fed Spread. I am probably going to resume putting these posts behind the pay wall next week, since this chart is about to get extremely interesting.
You’ll recall that, until a week ago, the Debt Ceiling was all anyone could think about. Now that it’s resolved (and the debt ceiling feels like it was about a decade ago), no one is thinking about it anymore, but I think there’s going to be a major impact on equities in the months ahead.
Walking through the three sub-components, we have the reverse repo doing nothing it hasn’t done for the past year. That is to say, it’s still floating above $2 trillion a night.
Next, we have the Federal Reserve’s Total Assets, which has just about reached the level it was at (by way of QT) before Silicon Valley Bank threw a turd in the punch bowl.
Far and away the most important is the chart of the Treasury’s balance sheet, which is the king-sized checking account that Janet Yellen keeps at the Federal Reserve. As you can see, this sucker was headed for the biggest NSF charge of all time, as Janet’s checking account was just about to run dry. Thanks to the political deal from last week, Janet is going to get to absolutely cram her checking account with countless hundreds of billions of dollars that weren’t there before.
That hasn’t happened yet, though, so the Fed Spread has enjoyed an outsized benefit from the collapse of the Treasury balance sheet. This explains why the computed value ripped higher by almost 100 points to about 4,000.
