Expected Liquidity Tsunami Has Expected Effect, But What Next?

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

• After seeing the most bullish liquidity conditions of the year in April, the markets will continue to have bullish liquidity conditions through May. More Treasury paydowns this month have added to Fed cash injections to the market, leaving enormous piles of cash in dealer and other big players’ accounts with not enough supply of new paper to place it in.

• Strong tax collections have blown away previous forecasts and the reduction of Treasury supply that we expected has happened.

• Primary Dealers are always heavily long fixed income securities, but have been short the 10 year Treasury. They were short the 10 year futures for several months but the latest data shows them flipping back to the long side in the futures apparently looking for a rally in Treasuries. If they’re wrong it won’t be the first time

• There was some sign of a pickup in foreign central bank buying of Treasuries last week.

• Bond mutual fund buying had been a bullish factor for the bond market, but now that trend looks broken.

• Banks have been net sellers most of the time since the beginning of the year. That trend continued in the latest data

I tie all of this together for you, and more, in this week’s report.

Table of Contents

Treasury Auctions
Week Just Completed
Week Ahead
Treasury Auction Takedowns By Investor Class
Primary Dealer Trading
Bond Fund Flows
Bank Purchases Of Treasuries
Federal Government Cash Flows
10 Year Treasury Yield
US($) Dolor Index


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