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This Business About Reduced Treasury Supply is Pure Nonsense

The media is reporting today that the Treasury cut the size of the 2 year note auction by $1 billion and that’s supposed to be a big deal. A BILLION for god’s sakes!  Meanwhile the Treasury increased last week’s 4 week bill auction size by $5 billion, and added an unexpected $25 billion in cash management bills that they did not need. Did you see that reported anywhere?

Back at the beginning of the month the story was making the rounds that the Treasury had cut total supply for the third quarter. While that was true, the entire cut was due to the reduction of supply in July that was enabled by the GSEs paying the Federal Government a $60 billion dividend. The Treasury actually increased forecast supply for August and September by $50 billion while telling everyone that they were cutting supply. Obviously they did not fool the bond market, which has continued to crater.

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I warned subscribers to the Professional Edition Fed Reports about this shell game at the time.

8/3/13 The Treasury and the media made a big deal last week about the Treasury announcing that it was cutting its estimate of third quarter supply. This would be laughable if it were not so misleading and disingenuous. The third quarter is a month old already, and as we’ve discussed, supply in July was unusually light. The reduction in total third quarter supply is entirely due to that. In fact, the Treasury has INCREASED its estimated supply for August and September. It’s increasing bill offerings by $55 billion while cutting note and bond offerings by just $5 billion for the rest of the quarter. Total supply in August and September is now estimated to increase by $50 billion.

Somehow, I don’t think the Treasury market will be fooled by the Federal media misinformation campaign.

Meanwhile, the Treasury is currently flush with cash. They didn’t need the additional borrowing they did last week. It will be interesting to see if they again boost the 4 week bill to $50 billion as they did last week.

Treasury Cash Balance- Click to enlarge

Treasury Cash Balance- Click to enlarge

I cover this data along with real time withholding tax collections in the weekly Professional Edition Treasury Report.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish, 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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