The market got a huge gift from the US Treasury this week in the form of a $23 billion debt paydown. That cash put a bid under stocks and exacerbated the panic into Treasuries. The Treasury faces $40 billion in CMB expirations next week, and so far, there’s no announcement that they will be replaced. But they still have to announce the 4 week bill, and 3 year and 10 year note auctions, which the TBAC forecasts will be dumping $29 billion in new supply on the market at the long end. And they tend to be wrong, usually about 10% on the low side with their estimates. I have a suspicion that the announcement of the size of those auctions, which will come at 11 AM on Monday, might be a good time to sell Treasuries.
December 15th is estimated tax day for corporations who use a calendar year. The Treasury usually gets a little windfall that week, which enables it to pay down some debt, and that typically gooses the stock market over the last two weeks of the year. But this year those tax receipts are likely to be a might spare and that could translate into much larger than Treasury expected debt offerings over the last two weeks of the year. Under the circumstances, the best of this rally in stocks and the panic blowoff Treasuries may now be behind us.
In the meantime, Ben made good on his pledge today that the Fed would start buying Fannie paper and other mortgage securities. It was a small gesture, and in the long run won’t mean much, but this market loves signs, even if they don’t mean anything. In this case, the Fed’s buying will not even come close to replacing the amounts of GSE securities being dumped by the FCBs.
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