Fed and Treasury Try To Stack The Deck For Happy New Year – Professional Edition

The following are just a few of the key bullet points in this report:

• The Treasury pumped cash into the markets last week via net paydowns of settling paper on Monday December 17 and Thursday, December 20.

• Expiring CMBs will reduce net new Treasury supply on December 31 to a much lower than usual $12 billion for a month end settlement. The Fed has scheduled Twist purchases next week that will essentially absorb all of that. It even went so far as to cancel a planned offsetting Twist sale to try to assure investors a Happy New Year

• The Fed settled $75 billion in MBS purchase settlements in the December 12-20 period. That cash helped propel the expected Santa Clause rally in stocks until the fiscal cliff dwellers got nervous and tanked the market on Friday.

• Withholding tax collections surged toward 10% year to year gains. However, most of this is probably due to accelerating income recognition from 2013 to 2012 in order to beat the increase in tax rates resulting from the failure of budget negotiations to avert the fiscal cliff. It’s unclear how much of the gain is due to the underlying economic trend.

• As a result of the income acceleration, January income should be reduced, partially offsetting any increase in the tax rates. But outlays will also be lower, so some reduction in Treasury supply can still be expected.

Table of Contents

Treasury Auctions. 4
Week Just Completed. 5
Week Ahead. 6
Treasury Auction Takedowns By Investor Class. 9
Primary Dealer Treasury Holdings. 10
Bond Fund Flows. 15
Bank Holdings of Treasuries. 16
Federal Revenues. 18
Economic Data Schedule. 26
10 Year Treasury Yield. 27
US($) Dolor Index. 29


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