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A Rocky Start For Liquidity, Then Smooth Sailing For Markets in August – Professional Edition Free Excerpt

The end of month Treasury supply dump totaling $55 billion settling on Wednesday coincides with the period where the Fed does the least buying in support of the market. That sets up the potential for rocky markets this week. But after that supply will be light, and the Fed will still be pumping, particularly at mid month. August should therefore again be a positive month for liquidity flows into stocks, and Treasuries could see improved flows as well. Click here to download complete report in pdf format (Professional Edition Subscribers)

Free excerpt below.

Table of Contents

Treasury Auctions
Week Just Completed
Week Ahead
Treasury Auction Takedowns By Investor Class
Primary Dealer Trading
Foreign Central Banks
ECB And The Treasury Market
Bond Fund Flows
Bank Purchases Of Treasuries
Federal Government Cash Flows
10 Year Treasury Yield
US($) Dolor Index

A regular feature of this weekly report is the monthly update of the charts of Treasury Auction Takedowns By Investor Class. This is timely indicator of who is buying what in the Treasury market. The Treasury Department updates the data monthly. The following charts are included in this report. They tell an interesting and useful story for bond investors.

Treasury Auction Takedowns By Investor Class

Treasury Bill Auction Takedown - Click to enlarge

Treasury Bill Auction Takedown – Click to enlarge

Through June – Dealer takedown has declined slightly over the past year.

6/22/12 Dealers are taking the lion’s share of the T-bill auctions, and that share is steadily growing. It is followed by foreign and international accounts and investment funds. Both of those are in long term downtrends. Individuals, banks, and pension funds are not major players.

Treasury Bill Auction Takedown - Click to enlarge

Treasury Bill Auction Takedown – Click to enlarge

Chart through June – Investment fund buying has fallen over the past 9 months while new supply has been static. Dealers are buying less over the past two years, with a significant reduction in the past 12 months. Foreign and international accounts had been buying less from 2010 to 2012, then took up some of the slack, but they backed off in June.

2/16/13 The Fed no longer takes any of the new Treasury supply directly. Primary Dealer buying has declined lately, while investment fund buying surged in 2012, helping to drive yields to all time lows. They were apparently determined to be the bagholders at the tail end of this bond bull market. Foreign buying has been steadily declining since 2009. Individuals, banks, pension funds and insurers are not a significant source of auction demand.

Treasury Bill Auction Takedown - Click to enlarge

Treasury Bill Auction Takedown – Click to enlarge

Treasury Bill Auction Takedown - Click to enlarge

Treasury Bill Auction Takedown – Click to enlarge

Charts through June – The decline in foreign buying of longer term paper has stabilized over the past year, with a slight year to year uptick in June.

2/16/13 Foreign accounts are apparently determined not to be the bagholders. They have been steady on their takedown of bills, but they have sharply reduced their buying of longer term Treasuries, where the risk lies.

Also each week I update the chart of the ECB’s assets versus Treasury yields. As you can see, there is a correlation.

ECB and the Treasury Market

7/12/13 The repayment of LTRO loans by banks who received funding from the ECB has directly correlated with the selloff of Treasuries. Some of the recipients of ECB loans apparently invested the proceeds in Treasuries. As the repayment window opened at the beginning of 2013, apparently some holders began to unwind those trades. That trend appears to be continuing.

ECB Assets vs Treasuries - Click to enlarge

ECB Assets vs Treasuries – Click to enlarge

Click here to download complete report in pdf format (Professional Edition Subscribers) including 36 pages of charts and clear, cutting edge analysis that you can use to gain an edge in the market. Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. 30 day risk free trial for new subscribers. Click here for more information.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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