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Record Light Treasury Supply, But How Long Will That Last?

Treasuries rallied last week, helped by light supply and increases in buying by Primary Dealers, commercial banks, and foreign central banks. Primary dealer Treasury coupon positions reached their highest net long level since April 2014.

The upturns in bank buying and FCB buying in recent weeks had appeared to signal that they were entering the uplegs of their usual buying cycles, but bank buying stalled and FCB buying was less than robust last week. It’s not clear whether the uptick in buying was just a blip in a downtrend, or a return to increased buying within their normal buying cycle patterns. In the weeks ahead, if there’s no upside follow through, that would be a bearish signal for the markets.

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Treasury supply will be exceptionally light in August and this week in particular. The mid month offering of notes and bonds will result in a net paydown. It will be small, but I cannot remember the last time that we did not see significant new coupon supply at mid month. The Fed will supplement that paydown by mainlining approximately $30 billion in MBS purchase settlement cash into Primary Dealer accounts. Here’s what that all means now, with answers to what to look for in the weeks ahead.

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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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