The Fed conducted a huge $9 billion net draining operation on a day when the market was faced with settling $29 billion in Treasury CMBs. The Fed added $6.75 billion in weekend repos against $15.75 billion in expirations. The 5 day net stayed negative. The action breaks the strong uptrend in the SOMA over the past month. It seems that they are setting up for a possible tightening, as they allowed Fed Funds to trade at 5.31 overnight, and with the drain, pushed the rates at today’s repo auction to the 5.31-35 range. Steve Northwood and Russ Winter alluded to the possibility in yesterday’s podcast. Making matters worse, the Treasury announced another $11 billion in CMBs on top of $29 billion in new paper settling today. Stocks prices felt the pressure. Click here to download complete report in pdf format (Professional Edition Subscribers).
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