Fed Starting QE3 Purchase Settlements This Week Facing Light Treasury Supply, Leaving Dealers With Excess Cash

Here are just a few of the key points covered in this report.

  • Treasury supply was heavy last week. In addition to the usual round of bills and mid month notes and bonds, the Treasury floated $25 billion in cash management bills (CMBs). The CMBs settled Thursday, adding to market pressures last week.
  • New notes and bonds auctioned last week create net new supply of $9 billion settling on Thursday, November 15. That’s much less than usual for the mid month settlement. At the same time, the Fed will settle $45 billion in MBS purchases from Primary Dealers between November 14-20. Dealers typically absorb about half of the new supply. That will leave $40 billion or more in cash over and above what’s needed to absorb the new Treasury supply.
  • Watch on Monday for a Treasury announcement of another CMB. The TBAC schedule calls for one. That could absorb some of the excess cash and reduce the bullish potential of that cash.
  • The 10 year yield is sitting on a critical trend level on the chart. Excess cash could cause a break of that level. What might that mean for stocks?

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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. 

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