It'll be interesting to see who has the balance sheet capacity to absorb the Treasury issuance in the second half of 2021, and at what price.

1H2021 won't have much Treasury issuance, due to the planned TGA drawdown. 2H2021, however, likely gets tight. https://twitter.com/RobinBrooksIIF/status/1358409535514439689

If the private sector has to buy it, yields likely go higher, which all else being equal puts pressure on growth equity valuations.

If the Fed has to step in and buy more Treasuries for lack of sufficient demand, that's kind of Minsky Moment for the dollar.

This will require monitoring all year. The problem was going to start earlier, because Treasury was planning a ton of issuance in 1H2021, but under Yellen, the Treasury revised that down on February 1st to draw down TGA for now instead. So now more like a 2H2021 issue.

If Treasury runs $3T deficit, and draws down TGA by $1T, that leaves $2T in Treasury security issuance. Fed buys $1T at their current $80B/month rate, leaving $1T for private sector absorb. Doable.

If Treasury runs $4T deficit, however, that's $2T for private sector. Ouch.

There's a lot of demand for short duration UST, so the Treasury can keep duration low to reduce the problem. Which they've been doing. https://twitter.com/LukeGromen/status/1359181409445896200

Apart from that, large commercial banks have a lot of capacity to absorb Treasuries in 2021 (unlike 2019, when they were tight on capacity).

They're one of the only places besides the Fed that has the capacity to absorb over $1 trillion in issuance rapidly, if need be.