The markets laughed in the face of adversity on Thursday thanks to massive infusions of cash from the Fed in no strings attached direct purchases of Treasuries and Agencies from the Primary Dealers. Leveraging that cash stake the PDs had just the right time and knew just the right place to put a little pressure on the shorts where it would hurt them.
The Fed’s balance sheet data tells a fascinating story this week. It shows that the Fed’s manipulations are working for the time being. But the current level of support my not be enough to keep the market from dropping back as Treasury supply begins to build in May. The last two weeks of April will see reduced supply thanks to tax receipts. That makes those two weeks favorable for rally conditions to persist if the Fed keeps its pedal to the metal.
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