In a previous post I was questioning the effect of the debt-ceiling and the extraordinary measures currently being taken to avoid increasing the current federal debt, on treasury yields (https://talk.newagtalk.com/forums/thread-view.asp?tid=1109436&mid=10199276#M10199276).

When I work through the math regarding how many dollars of Gov Debt US investors would need purchase the two quarters following a debt ceiling increase, to fund the deficit (and replenish the extraordinary measures the treasury secretary had to take during the 6 months the treasury could not issue a net increased amount of debt), I find a number large enough to effect stock market prices and treasury yields (imo).

My assumptions are as follows:
1. Federal reserve continues QT at similar pace as the last few months ($163 billion/quarter)
2. Foreigners continue to reduce their position in US debt at a similar pace to the last 4 quarters ($106 billion/quarter)
3. Banks continue to reduce their position in US debt at a similar pace to the last 3 quarters ($83 billion/quarter)
4. Net increase in federal debt in 2023 of $1.75 trillion (25% more than 2022's budget deficit)
5. Once the debt ceiling is raised, the extraordinary measures replenishment needs to be done quickly, because the treasury will need to begin the extraordinary measures again fairly quickly in 2024 if the debt ceiling is only raised enough to fund one year of deficits (current proposal from the House)

US (non-bank) investors are left to buy the remaining increased debt at $1.2-1.3 Trillion/quarter (they are buying more than the deficit, because banks, foreigners, and the federal reserve are reducing their positions in government debt). Pre covid, US (non-bank) investors were buying about $136 billion/quarter of net gov. debt. A rough estimate is that from Jan 1-Apr 1 2023 quarter is that this group bought $400 billion in net gov debt (stocks/bonds flat to up slightly). The 2 quarters prior to hitting the debt ceiling, this group was buying $680 billion/qtr of net debt (and stock/bond prices were going down). I'm thinking $5-600 billion dollars/quarter of new debt purchases is all the market can handle. I believe we saw relief in the stock/bond market the last 4 months, primarily because the treasury quit issuing net new debt, allowing more cash to flow into the stock market, and reducing the supply/demand imbalance of the treasury market.