The Fed pulled a net of $1.5 billion out of the liquidity pool on Tuesday, even as it faces a huge wave of Treasury supply. It pumped in $8 billion in overnight repos against expirations of $9.5 billion. The Treasury raised $4 billion in new cash at Monday’s bill auctions, and today announced a $23 billion CMB to be auctioned tomorrow. The 4 week bill raised new cash of $17 billion. All of that settles Thursday. They settle net new money of $7.7 billion in 2 and 5 year notes on Wednesday. The Fed’s drain today came as a shock to the market (and to me) and exacerbates the supply pressure. The 4 week bill auction benefited from a huge flight to safety bid as investors fled from stocks worldwide. Click here to download complete report in pdf format (Professional Edition Subscribers).
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