Money and The Fed

In case you haven’t noticed, bill rates have now been trending up for 6 weeks. To be sure, the changes are minuscule on the basis of number of points, but they are significant in percentage terms, having nearly tripled on the 4 week and 13 week bills (if you don’t count that week when...
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The Fed’s balance shrank in the week ended Wednesday as it settled the sale of $5.7 billion in MBS with no offsetting purchase settlements. It has scheduled over $75 billion in MBS settlements for the remainder of March along with another $6 billion in GSEs to bring that program to a close. That $81...
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The month to date tax receipts for the full month of February are out. Withholding taxes were down 2.3% year to year. That’s a big improvement in the rate of decline over recent months. The change was only -0.6% versus January. This is the best performance since 2007 when the month to month change...
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The Treasury has decided to replenish its Supplementary Financing Program account at the Fed by selling $200 billion in CMBs over the next two months, on top of the already enormous amounts of regular debt expected. The preliminary estimate for total new Treasury supply to be auctioned and issued in March is $318 billion....
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The Treasury managed to have the good fortune of lots of bad news this week, enabling them to get all the auctions off at lower rates than where the market was the week before. Meanwhile, the market faces the horror of an estimated $318 billion in new Treasury supply to settle between March 4,...
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The Treasury announced today that it would replenish its rainy day fund (SFP- Supplementary Financing Program at the Fed to the tune of $195 billion, bringing the total on deposit back to $200 billion, where it was before the great drawdown of last October. The Treasury will do that by selling $25 billion per...
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The Fed took another step toward ending its support operations last week. It raised the discount rate and cut the term of discount window loans back to overnight, and raised the rate on TAF operations while affirming that the next TAF auction on March 8 will be the last in that program. In the...
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The Fed continued to wind down its support operations last week as it sets up a last hurrah with its MBS purchases. Foreign central bank demand for Treasuries and Agencies remained tepid. Treasury supply was moderately heavy, and the pressure showed itself in the Treasury market late in the week. The dollar carry trade remains...
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With all the nervousness about sovereign credit, this week’s auctions have gone very well. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund....
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The dollar strengthened dramatically in an apparent short squeeze that triggered liquidation across most asset types. The dollar has emerged strongly from a formidable bottom on the charts, as the first response of dollar carry traders to double down and increase their bets back in December has come back to bite them and the...
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The Treasury issued its refunding statement on Monday, followed by the Treasury Borrowing Advisory Committee quarterly report on Tuesday. The statement recognized the reduction in first quarter offerings by $86 billion to $392 billion. This was essentially a recognition of the January reduction that resulted from the Treasury’s excess cash holdings at the end...
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The regular 4 week bill announced today will total $17 billion, which is more than the $10 billion sold each of the last 3 weeks, but still less than the $24 billion that had been estimated by the TBAC. Does the size of the 4 week bill signal the end of the reduced Treasury...
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Now that the mad scientist has been reconfirmed for another 4 year term as the emperor of the financial system, we can expect more instability as he continues his wild experiments in monetary policy. Unexpected, unintended consequences are likely to rear their ugly heads at any time. It’s our job to be on the...
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The Treasury finished its workweek by auctioning the 7 year note on Thursday and announcing next week’s auctions. This week’s auction went well, and next week’s calendar is very light, with another significant paydown likely. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition...
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The Case Shiller Index of US housing prices for November has essentially turned flat over the past two readings. As usual, it is understating the real weakness in the market. Meanwhile the Fed announced that it will tinker with how it sets interest rates. Recent history has shown, the more the Fed tinkers, the...
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The Treasury announced today that it would offer just $10 billion in 4 week bills, as we had surmised, as it continues to use the excess cash it built up last month, augmented by the January 15 tax take, to reduce its short term debt offerings. That leaves things on track for $25 billion...
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Stocks sold off and the Treasury market got a boost, coming into a week where the government will be offering $94 billion in new notes. Are we surprised? Maybe it is a coincidence that stock market sentiment was shaken last week and that money rushed into Treasuries, but this setup was ripe, and we’ve...
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The big news this morning is the Administration proposal to ban proprietary trading by commercial banks. The implications of that are mind bending. How would it be accomplished? The banks would have to divest their proprietary trading units. That would be interesting. What about Goldman? Just converted to a commercial bank, will they convert...
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It comes as no surprise that this week’s light Treasury calendar resulted in extremely strong bid/cover ratios, and big increases in indirect bids with rates remaining near zero. With just 3 bill auctions, all smaller than anticipated as the Treasury applied its December cash windfall to reducing debt offerings this month, there was a...
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The Treasury again sold less debt than forecast and next week’s calendar will also be lighter than forecast. This trend could last through the balance of January, and possibly into the first or second week of February based on the rate at which the Treasury has been depleting its cash. That cash will get...
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The masters of yield suppression fell down on the job today. 10 year yields at the auction popped up 5 basis points from yesterday’s levels in the market. Prior to the auction there was no news “hook” that they could use to generate some selling in stocks in order to push the yields down....
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Part of the reason for today’s bond market strength was the big paydown in the 4 week bill. The $18 billion paydown left investors with nowhere to go. With the weak earnings scare, the first option for those getting cash jammed back into their pockets was intermediate term Treasuries. Click here to...
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While I still don’t know exactly how the Treasury built up that enormous cash hoard, we may have gotten a clue today how it intends to use it. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that...
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Month to date tax receipts are now in for the entire month of December. They’re down 7.7% from December 2008, which is exactly the same rate of decline as November’s. We know that the TBAC and Treasury officials were not anticipating that in their debt sales forecast for the first quarter. They had assumed...
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The Treasury has been selling less debt than we expected over the past two weeks. In spite of that, the Treasury market has been pressured as both the Fed and foreign central banks continued to reduce their support of those markets. Click here to download complete report in pdf format (Professional Edition...
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Thanks to TARP repayments the Treasury was able to reduce its debt offerings this week, but the market still faces an enormous settlement on Thursday. No doubt the Fed has scheduled a massive MBS purchase settlement to coincide with the Treasury issuance. Looking ahead in January, the average remaining MBS settlements will only cover...
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The 4 week bill auction will be smaller than we expected, resulting in “just” $70 billion in net new paper this week.  The market showed some signs of strain. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within...
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The Treasury announced the details of next week’s note auctions this morning. What’s going on in the Treasury market will have a big impact on housing. Today we got data from the Mortgage Wankers Application Index, and the Conmerce Department on new house sales that verified what we’ve been seeing in our independent view...
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Today’s release of existing home sales by the NAR shows that Federal housing gift programs continue to distort the housing market. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will...
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The Treasury settled $49.7 billion in newly issued debt last week. Surprise, surprise, that’s almost the exact amount of MBS securities the Fed settled to its balance sheet. It has to be a matter of some consternation to Bernanke and Co. that even though the Fed has been conducting these back door maneuvers to...
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