The markets surprised me by holding up well around Thursday’s settlement of $61 billion in net new Treasury supply. Either stocks or bonds should have felt some liquidation pressure. The reason they didn’t appears to be that Japan came back to the Treasury auctions and supplied enough cash on top of POMO to keep the game intact. There may be a delayed reaction on Monday, but the conditions for the balance of the month appear ripe for more rally.
The next several weeks will be a period of very light net new Treasury supply, thanks to tax collections and to the expiration of $50 billion in cash management bills that were floated in late February. That cash will fund much of the new paper. As it stands now, the market should not face any significant net new supply until the beginning of May. And the Fed isn’t going to stop pumping just because there’s no new Treasury supply.
I have been suspicious lately about the impact of all the BoJ money pumping in the past few weeks. It now looks as though I will have to add BoJ operations to my already overflowing plate. There’s a learning curve involved in getting a rudimentary handle on the BoJs operations, and there’s much data to crunch. The first thing that I have learned that hit me like a brick was that the BoJ conducts regular, large US dollar operations. Since they are dealing with the same gang of criminals that the Fed deals with, those operations have a direct impact on US markets.
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