Preparing For 2027 Inflection in Global Liquidity | Michael Howell’s Bull Case For Bonds and Tepid View of Liquidity-Sensitive Assets

Michael Howell’s main warning is that global liquidity growth peaked in late 2025 after roughly three years of rising, and could slow sharply before bottoming in the second half of 2027. He says the trough could come sooner, with signs of a possible turn already appearing, but does not expect liquidity to rise in a straight line. The Global Liquidity Index has rebounded after dipping below 30, largely because of the Fed, yet Howell expects another decline and sees no current case for a plunge like the 2023 tightening. He focuses on three- or six-month trends, seeking several readings to confirm a pickup, because liquidity typically leads asset markets by about six months.

The pressure comes from refinancing as well as new borrowing. The 2026–2030 maturity wall is existing debt coming due, and rolling it over at higher rates increases demand for liquidity. Howell says the debt-refinancing cycle turned down after peaking in late 2025; its usual five-to-six-year duration roughly matches global debt’s average maturity. He also cites about $2 trillion a year in new federal debt and close to $1 trillion a year in expected hyperscaler debt over the next two years, alongside similar equity funding. He argues that AI investment in data centers and chips consumes liquidity, with financing shifting from roughly 80% cash flow to 80% markets. He sees refinancing strain emerging in repo collateral markets and widening spreads between CCC and single-B borrowers.

Howell’s debt-and-liquidity framework helps explain why he expects policymakers to support funding markets. Debt needs liquidity to refinance, while collateral-backed liquidity depends on debt as collateral; he cites a World Bank estimate that 77% of global lending is collateral-backed. He describes a debt-to-liquidity ratio near 2× as equilibrium, while higher levels can bring refinancing problems. In the U.S., the Fed has targeted bank reserves of about $3 trillion; a roughly $400 billion shortfall around September–October last year coincided with repo-rate spikes, before reserve-management purchases moved reserves back toward target. Howell expects Treasury bill issuance to become a major liquidity impulse as Fed QE shrinks by 2027: bills are about 23% of federal debt, and he expects the share to move toward 30%. He estimates that a five-percentage-point increase would equal roughly $3 trillion of net liquidity stimulus, though the money may flow to the real economy rather than financial markets.

Howell favors government bonds with duration as markets shift from speculation toward turbulence. He expects falling liquidity to flatten yield curves, with U.S. and Japanese curves already having flattened, and sees a possible bull flattening as longer-term yields moderate and demand for safe assets rises. He estimates the Treasury term premium at about negative 50 basis points and fair value for the 10-year yield at roughly 5.5%–6%, attributing that level mainly to economic strength rather than fiscal fragility. U.S. nominal GDP is growing at its fastest pace since the mid-1980s, reflecting both inflation and real activity; Howell estimates AI capital spending contributed about a third of U.S. growth over recent years. He expects some yield moderation, but not Covid-era declines. Persistent economic momentum could still require higher Fed funds, while a slowdown could give the Fed room to ease.

His view is more cautious on equities and other liquidity-sensitive assets. Howell has been paring equities as falling liquidity and rising yields weigh on valuation multiples; unusually strong late-cycle earnings have supported indexes, but he expects earnings growth to roll over as the economy cools into 2027. He remains a net seller of credit, though he sees possible opportunities as the cycle moves through turbulence. He also expects commodities to pull back over the next six months and favors government debt for now, despite a longer-term positive view of commodities and real assets. Bitcoin is, in his team’s analysis, the asset most sensitive to liquidity. He says it may retest $70,000; holding that level could form a base and signal a liquidity turn, but its recent stabilization may depend on Fed support that does not persist.

Howell is also cautious on gold in the near term, tying its strength mainly to Chinese domestic money creation. He says PBOC liquidity has nearly doubled since 2022, while gold’s peaks this year broadly coincided with the Chinese balance sheet flattening around February or March. With Chinese liquidity currently sideways, gold around $4,000 could weaken if it falls further; Howell expects stronger performance if China resumes debt monetization, while noting that Chinese liquidity may not move independently of the U.S. He cites historical sensitivities of about 15% for gold and 45%–50% for Bitcoin for each 10% rise in liquidity, with Bitcoin’s sensitivity declining. He does not predict a recession, but says the probability has risen and allows for further market pain; a liquidity downswing need not cause a crisis, though he says an “everything bust” could come later, possibly in the early 2030s.