As expected, the agreement regarding raising the US debt ceiling was approved. As a result, the US will temporarily not face default, at least until January 2025.
However, to meet the needs of government spending, the Ministry of Finance has planned to sell about $ 1 trillion in public bonds to the market by the end of the third quarter, according to Wall Street estimates. The plan will be implemented through multiple auctions, starting with three auctions this week with $173 billion worth of bonds.
The analysis shows that potential buyers of short-term Treasuries include banks, money market funds, households, pension funds, and corporate treasuries. However, in the current volatile situation, banks have limited demand for Treasuries. However, it is possible that their clients could switch from deposits to investing in Treasuries. If this happens, liquidity in the banking system will plummet.
Furthermore, the bond sale by the Treasury Department is expected to affect all asset classes in the market, including cryptocurrencies. This could create a severe liquidity crunch similar to the Lehman crisis of the past.
Thus, there are two possible hypotheses:
Firstly, in the short term, the cryptocurrency market, as well as the financial markets in general, are expected to experience some adjustment. The extent of the decline will depend on the magnitude of the capital flow shifting towards these Treasury bonds.
Secondly, in the scenario where the level of interest in Treasury bonds remains low, the Federal Reserve (Fed) may intervene by purchasing these assets. This could lead to a massive money printing spree, which would have a negative impact on the overall market.
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