It was a busy day. The Treasury sold 3 issues, at which the indirect bid was generally strong, except for the small TIPS issue, which indirect bidders shied away from. The Primary Dealer bid on all three issues was absolutely enormous leading to huge bid/cover ratios on the shorter term stuff. That leads to the question, “What do they know?” to which I might interject, “What the hell are they thinking?”
The Fed held another Toxic Assets Live Forever (TALF) party, and this one was an even bigger dud than last month’s. The total lent was just $1.7 billion. At this rate the Fed will reach its goal of $200 billion for this much touted “lynchpin of Fed policy”, uh…. never.
Even today’s TAF auctions dropped by 10%. The banks seem to be following the dictum, “Neither borrower nor lender be.” Of course that was a comedic Shakespearean line. In this case we are witnessing the tragicomedy of the Fed trying to keep the tide from going out. Needless to say, Bernanke and company are beginning to look like inept, powerless, nincompoops.
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The Fed as irresistible force has met perhaps an immovable object.