Wall Street Rally Threatened by Trillion-Dollar Treasury Vacuum

The US Treasury is set to release a flood of new bonds to refill its coffers, which will drain liquidity and could negatively impact markets. JPMorgan estimates that a broad measure of liquidity will fall $1.1 trillion from about $25 trillion at the start of 2023. The negative impact could knock almost 5% off the combined performance of stocks and bonds this year. Citigroup estimates a median drop of 5.4% in the S&P 500 over two months could follow a liquidity drawdown of such magnitude, and a 37 basis-point jolt for high-yield credit spreads.