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Posted in Liquidity Trader, Professional Edition

Hidden Chinks in Treasury Market- Professional Edition

When the Fed, Treasury, and FDIC issued a statement yesterday on the Citigroup bailout, I didn’t know whether to laugh, cry, or…

The potential enormity of this bailout raises the question of whether the Fed will continue to be able to recirculate the world’s existing cash, or will need to monetize. We don’t have the answer, and won’t for some time. Beyond that, we don’t know what the result will be. Japan is still fighting deflation after 20 years of massive escalation of government borrowing.

Meanwhile today’s T-bill auctions went off near zero, but there were subtle signs of the slightest weakening in demand. And mortgage rates aren’t coming down in spite of lower yields on the indexes on which they are based because the margins are getting wider. Lower Treasury yields and subsidized money market rates will not help the mortgage market. There has to be a return of confidence, and that will only happen when housing prices stop declining.

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