Supply Surprise Hit Treasury Market, Withholding Taxes Rebound – LINK CORRECTED

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Here are a few bullet points from this week’s report.

  • Withholding tax collections, which fell sharply in early August, have rebounded, and they are now running about 2-2.5% ahead of last year in real terms and about 4-4.5% in nominal terms.
  •  Treasury cash is back to normal levels, and outlays are running little changed from last year suggesting that no more Treasury supply surprises are likely for the time being.
  •  Bondfund inflows are increasing again but remain down 30% from the April peak.
  •  FCB buying of Treasury paper continued to increase last week, pumping some excess liquidity into the US, keeping that indicator slightly bullish. They are nearing a level where a downturn looks probable. If they go through that in the next few weeks it would add significant liquidity to US markets. If they turn down, that would remove a prop from the markets.
  • Primary Dealers bought Treasuries heavily in the week ended August 8. It was not enough to break a short term downtrend in their holdings from the buying panic high set in the week ended June 6, but kept them above an 18 month trendline. Breaking that line would be another bearish signal. They continue to hold a near record long position, which could be a sword hanging over the markets if yields continue to rise.
  •  Commercial banks overall continued to be moderately heavy buyers of Treasuries relative to their past norms in the August 8 week. They had frequently been net sellers prior to early June when their buying surged to a record level far above previous norms. That may have marked a blowoff and a significant turning point in the market.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also provide analysis and charts for David Stockman's Contra Corner which I developed for Mr. Stockman. I’ve had a wide variety of finance related jobs in the past 44 years, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today.