Three weeks ago, moments after the Treasury released its latest Treasury issuance Sources and Uses report which virtually nobody on Wall Street pays attention to, we confirmed  something we first observed months earlier: stealth QE - which as we explained early this year is how the Treasury injected $1.5 trillion of liquidity into the market in the past 12 months bypassing the Fed entirely - was not only over but was about to go into reverse as the US Treasury was set to unleash several hundred billion of quantitative tightening.

The reason: after dropping to a post-covid low of $450 billion, the Treasury's cash balance would first drop to $300 billion, and then continue declining for the duration of the debt ceiling negotiations (which will conclude successfully at some point in the next 2 months despite days of theatrical posturing as the US will not default) before surging to $800 billion by year end.

To be sure, the specifics of the upcoming Quantitative Tightening are still in flux and depend on when the US debt ceiling (which as a reminder was hit on July 31) and will be raised or extended: for all intents and purposes this is expected to take place some time "in October or November" which is when the debt limit deadline hits according to the CBO (that's when the various emergency measures to extend the debt ceiling expire).

But while some last minute fireworks are assured, absent a compete collapse in the political process we expect another can-kicking extension in the debt ceiling some time in October or early November. To be sure, that means that the Treasury's benign Sept 30 forecast of $750BN will not be met and instead Treasury cash levels will continue to shrink from current levels until there is some resolution.