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Fed and US Treasury injections of extra cash into the market via Fed MBS purchase settlements and temporary Treasury debt paydowns often tend to coincide with FOMC meetings. We have seen this phenomenon so much that it would appear to be deliberate. Most of the time it results in a 2-3 day rally immediately on the heels of the FOMC announcement.
We even have a name for this phenomenon–the Fed Resubstantiation Rally, in which the market appears to be cheering the Fed’s action. In reality, the extra cash coming into dealer accounts “predisposes” the market to do that. During QE it was just an enhanced aspect of the regular flow of Fed cash injections into the market. Today, without QE, it’s one and done until next month at mid month. The market must fend for itself after the MBS settlement week ends on September 21. The Treasury paydowns will be a one day affair on September 17, so they should be out of the way as well.
This FOMC announcement is on Thursday instead of the customary Wednesday. The first and largest slug of Fed MBS purchases settled on Monday. A little more is coming on Thursday, coincident with the Treasury paydowns. The party could turn into a real barn burner Thursday afternoon as Madame Chair performs her scripted dog and pony show with the mass media hound dogs dropping softball questions in her lap. That might just mark the end of a buy the news rally, although a bit more cash is coming next Monday to possibly add a little froth before they turn out the lights.
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