The composite liquidity indicator barely budged last week, as the Fed’s mid month settlement of its monthly forward MBS purchases was largely offset by the fact that most of the cash sat in reserves at the Fed while other measures marked time or pulled back slightly. Two large cash management bills (CMBs) issued by the Treasury over the past two weeks offset the effects of the February mid month surge of Fed liquidity causing a temporary shortage of cash for the markets. The repayment of $63 billion in ECB LTRO loans exacerbated the situation. Barring a reduction in QE, this was one of the few weeks that we will see this year where there’s not enough Fed QE money to absorb new Treasury supply and other negative impacts.
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