Liquidity drains will continue this week as the Treasury settles another $62 billion in T-bills. That will continue on February 17, when it settles about $35 billion in coupons, meaning this week, about $90 billion will need to be raised for settlement. The bill schedule for the week of February 17 could add another $60 billion to that total. This means that, over the next two weeks, we could be looking at $150 billion in settlements. 
What seems clear at the moment is that none of the money is coming from “cash on the sidelines” to fund the debt.
Anyway, the point is that the cash is coming from somewhere; some of it appears to be showing up on dealers’ balance sheets, which may matter if it reduces liquidity in other parts of the market, such as leverage.
Given how the stock market performed and the state of reserve balances, margin levels probably took a bit of a hit in January. I’d be shocked if they increased in any meaningful way.
The LDP won by a landslide in Japan’s weekend election, and that means PM Sanae Takaichi will get to “run it hot” on the economy. was already trading just below 158, and the win probably means it will weaken further.
At this point, the BOJ is dragging its feet, and the government is running really loose fiscal policy, so it makes total sense to see the USD/JPY rise further, and the threat of intervention really seems out of place, in my opinion. But it is clear they are worried about the 160 level.
A weekly technical chart of the USD/JPY shows why. After 160, the next level of resistance comes around 164, and that is it, because it would seem to me that 220 comes next. It certainly sounds crazy, but then again, talk of the trading over 2% sounded that way a year ago, too.
Of course, the divergence between the JPY and the interest rate differential is under greater strain, given how far they have already diverged. At this point, the only things that will reverse this trend are the yen strengthening, Japanese rates falling, or US rates rising. I don’t have an answer to which one happens.
We tend to care about this only because of the impact we have seen on our own market, specifically on the direction of the 5-year cross-currency basis swap and . That trend has not broken for nearly 4 years now. Right now, based on this chart, dollar funding conditions are easy, which is probably part of the reason why we have seen assets like and certain parts of the equity market get smashed while the broader index holds together.
If, for some reason, demand for hedges changes, the flow of liquidity will change as well. Something to watch.
