Soaring short-term interest rates, tightening financial conditions, falling commodity prices, and a strong dollar. These factors might lead markets to the tail event of a liquidity squeeze.
A liquidity crunch materializes when the short-term availability of money decreases. Thus, banks may be reluctant to lend money and increase lending requirements. That's why a large amount of T-Bill issuance coming after the debt-ceiling agreement might be the catalyst for a liquidity squeeze.
How much should I be worried about a liquidity crunch?
The fact that the stock market continues to be complacent doesn't mean that the tail risk of a recession is remote. In times like these, when nobody can envision a crunch, hell breaks loose.
Things are not encouraging, and a liquidity squeeze seems worth hedging against.
(1) The amount of debt the US Treasury must issue by the end of June is not negligible. In only four weeks, the Treasury will need to place the biggest net bill issuance in markets outside of a crisis.