The markets stumbled through this week in spite of having plenty of POMO and $16 billion in Treasury bill paydowns on Thursday to stoke the speculative fires. But alas, a minor problem looms. The Treasury will issue $68 billion in net new debt on Monday that the market must pay for. The Treasury says it’s $72 billion. For some reason it is not accounting for $4 billion in 30 year bonds supposedly maturing that day. My surmise is that these bonds were previously called.
Either way, it’s the biggest net settlement since last November 15. Back then the Fed gave $15 billion in POMO assistance that Friday and Monday. That was the beginning of Phase 2 of QE2. This time around it will only be $8-9 billion but there was a full week of POMO leading up to this point. Last November 15 and 16 the SPX lost 21 points. The Treasury market had taken the heat the week before when the auctions were held.
Meanwhile, we’re entering uncharted waters regarding the debt ceiling, the question of how maturing issues will be paid, and how the government will pay its bills. It’s in the hands of the politicians.
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