600 Billion

The Great August Rollover is now visible on the horizon. A half a trillion in US treasury debt will need to be rolled over and at least another 100 B will be issued. POMOs will have ended but some balance sheet adjustments will still be going on at the Fed. Dollar debt markets won't be able to count on Euro ugliness for help much longer.

Unlike the beat down capital markets are dropping on Europe, the US situation hinges on wading into post-QE waters. QE provided a backdrop for players to takedown large blocks of securities during auctions. July will give us a quick run with the training wheels off before the August deluge. The process by which America funds itself is about to get sketchier.

We have stated before that quantitative easing reduced Treasury volatility enough to support positive side effects in other markets. Contrary to other critics, we never believed those side effects were the Fed's focus. Take a moment and savor the enormity of a $600 billion rollover. QE amounted to buying 8.5 of every 10 securities issued. August supply is the size of the entire QE2 program. The Rollover is coming. As Jim Grant always said, these notes and bills should come with a notification - "Interest to be paid by issuance of like security."

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