Written by: Daii

On a day in September 2019, U.S. corporations concentrated their tax payments, and a new batch of Treasury bonds was due for settlement. Money flowed from banks and money market funds to the government, but dealers needed to borrow money to take on the Treasury bonds. In two days, the reserves banks held at the Federal Reserve decreased by about $120 billion. The interest rates for borrowing overnight cash against Treasury bonds suddenly surged; tensions eased after the Federal Reserve stepped in to lend money to the market. Although Treasury bonds are quality assets, holders may find it momentarily difficult to borrow cash. (Federal Reserve's review of the 2019 repo volatility)

The recent concerns raised by Goldman Sachs are the 2027 version of this experience. Wall Street Journal cited a report by Goldman Sachs interest rate strategist Isabella Rosenberg, predicting that the U.S. Treasury may need to replenish cash and increase Treasury bond issuance, among other things, in the second half of 2027. The original report was not publicly obtained by Goldman Sachs; the numbers and timings in the report are summarized predictions; whether the shock will occur depends on how Congress, the Federal Reserve, the Treasury, and bond buyers respond afterward. (Wall Street Journal report)

1. Why does the government make the market feel flush with cash at first and then tight later?

Think of the U.S. government as a large company that needs to constantly cycle funds. It collects taxes, spends money, and issues Treasury bonds to borrow money; day-to-day cash is held in the U.S. Treasury's general account at the Federal Reserve, known by the acronym TGA. Banks place their settlement money at the Federal Reserve, referred to as reserves. When the government sells new Treasury bonds and deposits the money into its own account, the cash available in the banking system can decrease; when the government spends the money, cash returns to society. The type of investors from whom cash comes and what the Federal Reserve does simultaneously will change the final impact. (U.S. Treasury cash balance announcement; Federal Reserve monetary policy report)

Goldman Sachs predicts that in 2027, the U.S. debt ceiling may make it difficult for the Treasury to continue net borrowing. At that time, it may use deposits and reduce short-term Treasury bond supply, making cash in the spring and summer appear ample. Once Congress raises or suspends the limit, the Treasury will need to issue bonds to replenish the cash account, akin to opening a floodgate and later concentrating on water accumulation months later. According to the summarized report, Goldman Sachs predicts a net short-term Treasury bond supply of about $1.1 trillion in 2027. This figure is model estimates, and the scale of borrowing, cash replenishment speed, and the bidding of Treasury bond buyers will all vary. (Wall Street Journal report)

Cash tightness may first appear in the "repo" market: institutions use Treasury bonds as collateral to borrow cash for overnight or few days, then repay and retrieve Treasury bonds. If cash lenders demand higher interest, bond-holding dealers and funds have to pay more financing fees; when they cannot continue borrowing, they may sell bonds or even sell other more liquid assets they hold. The overnight secured financing rate published by the New York Fed, known as SOFR, records the cost of such borrowing. It can serve as a thermometer; movements at the end of the month or on tax days must be viewed alongside subsequent days' trends. (New York Fed SOFR explanation; Federal Reserve 2019 review)

2. How far is this warning from "a financial crisis will definitely happen in 2027"?

The U.S. Securities and Exchange Commission has set June 30, 2027, as the compliance deadline for some Treasury bond repo transactions connected to central clearing. Participants need to adjust clearing, margin, and financing arrangements; centralizing transactions may also reduce counterparty default risk. The regulatory date is indeed written on the calendar, but the possibility of a centralized sell-off is not written in the rules. (U.S. Securities and Exchange Commission implementation description; Clearing agency DTCC's survey)

The Federal Reserve can purchase short-term Treasury bonds to replenish settlement cash for banks; simultaneously, it maintains a relatively high policy interest rate to combat inflation. The former action repairs payment and financing channels, while the latter determines how expensive borrowing is, and both can coexist. In the operational arrangements from October 15 to November 13 announced by the New York Fed, about $14.6 billion is reinvested from maturing funds, and new reserve management purchases are zero; Goldman Sachs' mention of resuming new purchases afterward remains a forecast. Buying bonds cannot directly translate to stocks and cryptocurrencies necessarily rising. (New York Fed's bond purchase arrangement; Federal Reserve on reserve management)

Rescuing the financing market may not lead to an immediate rate cut. Federal Reserve Governor Waller stated on November 10 that he leans toward a 25 basis point increase in December; if October's core inflation rises about 0.3% or higher, a 50 basis point increase should be considered. Subsequently, the Bureau of Labor Statistics reported that the core consumer price index rose exactly 0.3%. This has brought larger rate hikes into discussion, but has not made it a resolution already decided by the committee. (Waller's speech; Bureau of Labor Statistics data)

Currently, there is no "no one is buying Treasury bonds" fact. The U.S. Treasury still stated at the beginning of November that demand for short-term Treasury bonds is strong; the Investment Company Institute records that, as of the week ending November 4, money market fund assets increased by about $114.5 billion. However, a week's inflow of funds does not guarantee that every Treasury auction in 2027 will be digested at today's prices. Goldman Sachs points out the potentially thinning buffer in the future. (U.S. Treasury bond announcement; Investment Company Institute weekly data)

3. Where you put your money affects how the story unfolds

Those holding cash and short-term deposits may first experience changes in interest rates rather than investment losses; what to truly avoid is putting next year's tuition or mortgage down payment into products that may plummet at any time and cannot be withdrawn promptly. Those holding long-term fixed-rate bonds should pay attention to prices: as market new bond yields rise, the price of old bonds usually drops; the longer the remaining term of the bond, the more sensitive its price is to interest rate changes. If the economy is impacted and the Federal Reserve subsequently cuts rates, long bonds may rebound, so "being out of cash" does not automatically provide a one-way trade answer for bonds. (U.S. Securities and Exchange Commission on interest rate risk; Federal Reserve's review of the 2020 cash squeeze)

Stock investors need to observe how companies borrow money and make profits. A company that is constantly financing expansion but has not yet realized profits may see valuations pressured if borrowing costs rise or investors demand higher returns; companies with stable cash flows and lower debts may be affected differently. Goldman Sachs discusses U.S. short-term financing; to transport this to A-shares and Hong Kong stocks involves the U.S. dollar exchange rate, global capital flows, corporate financing, and various local policies, and cannot mechanistically translate the rise in U.S. repo rates to a fall in Chinese stocks. The International Monetary Fund confirms that emerging markets will be affected by the sudden withdrawal of global non-bank funding, but specific markets still have their driving factors. (International Monetary Fund on cross-border capital flows)

Gold holders should not interpret "safe haven" as always rising in price. If investors are in a hurry to make margin calls, they may first sell gold, which is easy to transact; if real interest rates then fall or market concerns about currency credit arise, gold may be supported again. Real estate investors face another kind of trouble: properties do not show prices every day, but may be difficult to sell at ideal prices within one or two days when cash is urgently needed; the impact path of dollar financing shock on U.S. mortgages differs from that on Chinese mortgages. When dealing with these types of assets, it is crucial to verify repayment dates and the time needed to sell. (Bank for International Settlements on gold and financial conditions; Federal Reserve's review of the market cash squeeze)

Crypto investors have an additional automatic amplifier. If Bitcoin or Ethereum falls to the margin line of contracts and collateralized lending, platforms may sell your assets; the selling pressure triggers the next wave of liquidations. The International Monetary Fund has found that as institutional participation increases, the correlation between crypto assets and stocks strengthens, and U.S. monetary tightening can also impact coin prices through risk preferences. Therefore, Bitcoin's long-term scarcity does not guarantee it will act as cash during the tightest few days of dollar financing. Whether stablecoins can be sold at face value, who can redeem them directly from issuers, and whether exchanges can timely withdraw funds also need to be individually verified. (International Monetary Fund on crypto cycles; International Monetary Fund on stablecoins)

4. A household balance sheet is more useful than guessing the crisis date

Take a purely accounting example: someone has 1 million yuan in investable assets, of which 400,000 yuan is invested in stocks and 200,000 yuan in crypto assets. Assuming both asset types drop 30% and 60% respectively in the same stress scenario, the accounting loss would be 120,000 yuan plus 120,000 yuan, totaling 240,000 yuan. These declines are hypothetical stress tests, not predictions for 2027. If he could only bear a loss of 100,000 yuan, he should adjust positions now, diversify similar risks, or reduce borrowing that could lead to liquidation; waiting to sell until after declines would be too late to change the risk budget. (Financial Industry Regulatory Authority on margin forced selling; International Monetary Fund on stock and crypto correlation)

First, list the large payments that must be made within the next 6-12 months, along with at least 3-6 months of basic living expenses; keep them in legally available, low-risk accounts or instruments that can be timely accessed in your area; if income is unstable or if there are heavy mortgage or business expenses, a thicker cash cushion should be maintained. The task of an emergency fund is to give you time to make choices; yield is not its primary goal. The Financial Industry Regulatory Authority also references 3-6 months of expenses as a guideline for emergency savings, emphasizing accessibility and risk avoidance. (Financial Industry Regulatory Authority on emergency savings)

Then ask yourself item by item: Are stocks overly concentrated in the same industry or a high-valuation narrative? What is the duration of bonds or bond funds, and can they withstand further interest rate hikes? Is gold seen as "cash" that absolutely will not decline? How long will it take to monetize properties, private investments, or locked-in products? Which investment would sell for you before you decide to sell? These questions correspond to valuation, interest rate, trading, and liquidation risks, and cannot be answered by a seemingly diversified fund name alone. (U.S. Securities and Exchange Commission on interest rate risk; Financial Industry Regulatory Authority on margin risk)

For crypto positions, prioritize handling leverage and collateralized lending, then consider thinly traded assets or those with a significant amount of tokens unlocking recently; do not keep all spare money in one exchange or one type of stablecoin. For stocks and funds, do not sell everything at once just because of the phrase "2027 crisis": if the Treasury slowly supplements cash, financing rates remain stable, and the Federal Reserve timely replenishes reserves, the market may calmly get through it. Those with cash and no forced liquidation pressure have the leeway to act in batches when risks and prices become clear again. (New York Fed's bond purchase arrangement; Financial Industry Regulatory Authority on margin risk)

5. What should you watch for next year to raise your vigilance?

Starting from 2027, first observe if the Treasury really quickly replenishes cash and increases Treasury issuance after resolving the debt ceiling; then see if the Federal Reserve simultaneously increases reserves. The Treasury announces financing and cash balance arrangements each quarter, the New York Fed publishes bond purchase plans monthly, and the Federal Reserve announces bank reserve data weekly. These three points can inform you whether the "cash in and out" envisioned by Goldman Sachs is truly occurring. (U.S. Treasury quarterly financing announcement; New York Fed bond purchase arrangements; Federal Reserve's balance sheet)

Next, watch if the cost of borrowing overnight money rises abnormally for several consecutive days. Compare the SOFR published by the New York Fed with the interest rates paid by the Federal Reserve to banks for reserves, while excluding common disturbances such as month-end, tax days, and Treasury bond settlement. If financing rates continuously rise, accompanied by worsening credit markets, forced reductions in stock financing positions, stablecoins trading at a discount, or withdrawal difficulties from exchanges, the pressure moves down the chain to investors. Any single indicator cannot substitute for a complete judgment. (New York Fed SOFR data; Federal Reserve reserve rate explanation; Federal Reserve 2019 review)

Goldman Sachs has not sent the market a notice reading "2027 will definitely crash." It reminds of a potential turnover problem: the government needs to borrow more money, and debt-holding institutions need to borrow short-term funds, while the readily available cash may not be as ample as before. The cash left today, reduced leverage, and clarified asset timelines decide whether, when a gust of wind hits the market next year, you can sit and read the news or must immediately sell your holdings. (Wall Street Journal report; Federal Reserve 2019 review)