This week is a big one including an FOMC announcement. Something equally big on the Treasury side is also due this week; The Treasury’s Quarterly Refunding Announcement (QRA) is made. In the past these were not that exciting. But, given the fiscal dominance propping the economy and the deficit spending it invites, this is now very important. The last QRA announcement October 30th, 2023, had a large impact on all markets as Michael Hartnett explains.

Hartnett's QRA Take

The Bond and Stock rally from November 1 to Dec 31 were in large part a result of Yellen’s last QRA announcement. Michael Hartnett notes that in his most recent Flow Show report below. First Hartnett told us what was behind the November and December Bond rally:

From Hartnett: Gold Inflows are Back, "Baby Bubble" Thesis Update

Oct 30th Q4 US Treasury QRA (Quarterly Refunding Announcement… $776bn vs consensus was $852bn) was the catalyst for epic Wall St rally… yields sank from 5% to 4%, SPX 4.1k to 4.8k…

Here is what happened back then to Bonds, Stocks, and Gold

Bonds stopped cratering, then ramped higher the rest of the year…

Taking stocks with them…

• Sidenote: let us not forget Ackman tweeted he covered his bond shorts right around the same time

  

   

Gold sold off initially because it correctly observed this was the government being in a little less of a bad borrowing position. People initially sold gold on that news as the graph below shows.

Later that month, Chinese SGE buying again overwhelmed this selling and took Gold to new All Time Highs on December 3rd/ 4th.

Putting it All Together:

Bond players are using gold as a deficit risk hedge. When Treasury borrowing goes up, they want the gold. When borrowing drops, they sell some gold out. Which brings us to now.

The next QRA announcement is due Monday Jan 29th. Market expectations are for a $970Bn announcement. For this analysis, Hartnett rounds it up to a cool Trillion for the quarter

Hartnett again:

QRA Monday 29th is v large $970bn of Treasury borrowing, so number well >$1tn needed to dent risk rally.

Therefore, if history repeats: Above $1 Tn is bullish Gold and bearish Stocks/Bonds. Below $1 Tn has the opposite effect.

The Path Forward:

Therefore anything *under* the expected number is bullish for risk-on markets and likely bearish Gold Anything *over* around $1-Tn should be bearish. stocks and bonds while causing many to buy more Gold.

If the Treasury borrowing surprises higher this time, Gold should run…

This Monday’s announcement is key, maybe even more-so than the FOMC at this particular point in time. Therefore, what the number is, and how the market responds to that number matters a great deal for perhaps the next 3 months for Stocks, Bonds and Gold.