The markets get a gift in the coming week. Depending on how strong tax receipts are, the Treasury will pay down as much as $48 billion in expiring short term bills on Thursday. That’s cash that will come back to holders of the paper. They’ll have to put it somewhere. This is a normal feature of tax week, and some of that cash usually flows toward stocks.
What appeared to support the bond market last week were some phony ginned up misses in the economic data. That was an excuse to dump stocks and scare money into Treasuries just at a time when the Treasury had to both roll over old paper and sell new paper totaling $156 billion. Is it my imagination or does the “bad” news, both real and imagined, almost always seem to come in the weeks when Treasury supply is heaviest? It would make an interesting academic study. My impression from observing these things closely for the past 10 years is that, call it “conspiracy,” or call it “metaphysics,” this is how the markets seem to function. The government and Primary Dealers need to keep bond yields down—they find ways to accomplish that. If it means they need to shake the stock market tree to do it, then that’s what happens.
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