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Treasury Pays Down, FCBs Buy, Fed Drains – Professional Edition

The Treasury paid down debt this week. Partly as a result of that, the indirect bid at the auctions was huge, signaling that foreign central banks continue to buy Treasuries at a breakneck pace. Meanwhile, spreads between GSE paper and Treasuries continued to widen at the same time as Treasury yields headed sharply higher.

Once again this week the Fed did not renew an expiring 28 day term repo in the amount of $20 billion. The Fed therefore is continuing to offset any liquidity added by the outright purchases of MBS and GSE paper by finding other ways to drain cash from the accounts of the Primary Dealers. It will be interesting to see if this week is the fifth week in the trend of reduced Fed credit outstanding.

Thursday evening the Fed releases its H41 report on its balance sheet. The MBAA will also release its weekly mortgage applications data a day late because of the holiday. I will review and analyze the data and post an update on Friday. Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

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