The Fed twiddled its thumbs again on Wednesday with a nominal net drain of $500 million. They added $7 billion in two day repos, against $7.5 billion in expiring repos. That allowed the 5 day net to drop to a paltry add of $1.5 billion, which is nothing considering the tidal wave of new Treasury paper that the market has to absorb, some $37 billion over the next week. They have a $29 billion Cash Management Bill settling Friday. This is in addition to $11 billion in new cash being raised in the two and five year note auctions. $11 billion in CMBs maturing on Friday will help somewhat, but next week’s auctions will ask for yet more cash, and new T-bills will suck $8 billion in new cash out of the market tomorrow. The Fed also faces a big rollover tomorrow. This is not a happy picture, liquidity wise. But somehow, the markets have temporarily seemed to find a supplemental fuel source. Needless to say, I’m skeptical that it can last. Click here to download complete report in pdf format (Professional Edition Subscribers).
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