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Fed Report Update – Professional Edition

The market sailed through 3 Treasury auctions unscathed today. 4 week bills, 52 week bills, and 3 year notes all went off without a hitch, raising $40 billion in new cash. The market had no trouble absorbing the new supply, thanks to continued panic levels of buying and support from Ben and Co.

Bid/cover ratios were strong. The indirect bid on the 4 week bill was higher than last week but the indirect bid on the 52 week bill was down from last month. The indirect bid was down slightly on the 3 year note from the April auction. Overall, on the week so far, the indirect bid has been down just slightly from the last auctions of similar paper, but it remains at historically record or near record levels.

The rate on the 4 week bill was up 9 basis points to 0.145 from 0.055. Last week the rate was suppressed due to a paydown. There was no paydown this week so that artificial prop was removed. The rate on the 52 week bill was down 6 basis points from last month to 0.53. The yield on the 3 year note rose 8 basis points to 1.473.

Tomorrow’s 10 year note auction includes a $5 billion paydown. That should impart a strong tone. The stock market may be surprised by that and react with a rally.

The next auctions will be a 10 year note on Wednesday, and a 30 year bond on Thursday. Only the bills settle this week. Net new supply settling Thursday is $28 billion. The Fed has already helped to absorb some of that with Monday’s $8.5 billion operation. Another operation is set for tomorrow to settle Thursday for 2-3 year Treasuries. The market should have no trouble digesting this paper this week. Next week could be a little more of a problem with the settlement of the notes and bonds. It will largely depend on the size of the bill auctions to come next week.

There were no Fed open market operations, no material changes in Fed Funds or Commercial Paper rates or Fed alphabet soup programs, and no significant change in the Fannie-Freddie spread to Treasuries. The dollar and 10 year note yields were little changed. All in all it was a quiet day. Perhaps that is notable in itself, given the Treasury supply pressures and the declining trends in the use of the Fed’s alphabet soup programs.

Refer to Monday’s full Fed Report for complete background and analysis. The next complete update for subscribers only will be on Thursday, with the weekly analysis of the Fed’s H41 balance sheet report and other weekly data to be posted Friday, for subscribers only.

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