April remains the most favorable month for liquidity given the reduced Treasury supply and the $44 billion in forward MBS purchases that the Fed had scheduled for settlement during the month. The Fed settled $33 billion of that in the week ended 4/14, leaving just $11 billion due to settle by the end of the month. Next week the Treasury won’t need much help as it has scheduled a big paydown. That cash will have nowhere to go as it faces a temporary shortage of paper. Normally that gives all markets a boost in the last couple of weeks of March, but with the nervousness surrounding the SEC suit against Goldman, the Treasury market should get most of the benefit.
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