It was an impressive performance. Stocks and bonds held up remarkably well this week in the face of an enormous supply of new Treasury paper.
The Fed is holding the usual monthly round of MBS purchase settlements August 12-21. This plus the regular weekly Treasury purchases has been sufficient to keep the markets bouncy for now. But that will change at the end of the month when more Treasury supply will settle and the markets get virtually no help from…
The US Government will need to borrow more money. What else is new. But right now it’s a question of whether it will need it this month or next. That’s important because it will affect the performance of the markets.
There’s not much new on the liquidity front this week. The big issue is whether the Treasury will or will not issue CMBs. It will make a huge difference in market performance at mid month. The end of the month looks like it could be trouble either way.
The TBAC now says that the Treasury won’t need the usual $50 billion in CMBs it needs in August. That could be huge for the markets, both for the outlook for the rest of August, and for September.
With Treasury supply forecast to run at about $60 billion in net new paper per month we have already seen the first test of what happens when the Fed cashes out the dealers at a rate of less than the amount of net new Treasury supply.
Last week I warned about the huge slug of new Treasury supply that would hit the market on Thursday, July 31 when the Fed gives virtually no support. I wrote that “That’s likely to cause some indigestion until mid August when the Fed’s next round of MBS settlements takes place.” While the size of the…
Central bank driven liquidity growth, while slowing is still pumping up asset bubbles.
The market faces its biggest test of tapered QE on July 31. Here’s what you should expect
Even as liquidity growth slows, there’s still no sign of the crunch that’s coming.