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More Crazy Ideas and Chinks in the Armor – Professional Edition

The Fed floated a trial balloon today on the idea of selling its own debt. Those of you who have been following these pages know that this is a horrible idea which would only further serve to crowd private borrowers out of the market. I’m not sure what effect the Fed intended by floating this idea, but I assume the idea will be a non-starter when all is said and done.

The Treasury sold 3 year notes and 278 day CMBs today and while rates were extremely low, bid/cover ratios fell from the last auctions of similar paper, and the indirect bid on the CMB was particularly weak. It’s too early to say if this means anything, but if it happens again next week, I’d begin to worry. The government can ill afford rates beginning to tick higher.

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