Apparently the US Government has decided to claw back virtually all of the $140 billion it pumped into the markets since September 15, in one fell swoop. That’s how much cash it sent back to dealers and other institutions who had held the 4 week bills and other paper which the Treasury paid off so that it would stay under the debt ceiling.
With the debt ceiling deal done, earlier this week the Treasury announced, and yesterday it auctioned, $35 billion in 69 day Cash Management Bills. Today it announced another $45 billion in new 72 day CMBs and it also brought back the 2 year note auctioned it canceled last week with a special $26 billion, 2 year note auction next week.
The 69 day bill settles today. The 72 day bill will settle on Tuesday, and the 2 year note will settle on Thursday. If the stock and bond markets don’t buckle under this onslaught of supply, the bearish case is in big trouble. That’s $96 billion in net new supply settling over the space of a couple of days. And that won’t be the end of it. There will be more in the weeks and months ahead, although certainly not at this pace.
I’ll have all the gory details on the Treasury supply and demand situation and outlook in the Pro Trader and Investor Monthly Reports Treasury Supply and Demand to be published later today. Knowing what’s coming gives you a big leg up on knowing what to expect from the markets.