The Fed bought $13 billion in Treasuries from Primary Dealers yesterday in its current version of Fed QE. It has now bought $17 billion of the $40 billion in Treasuries that it said it would buy this week. It has said that it will buy $6 billion today.
The Fed deposits the cash to pay for the purchases into the dealers’ accounts at the Fed the following day. That money is then available to the dealers to do as they wish. They can use all or none of it to purchase more Treasuries, or buy stocks, or whatever it is that they do with cash.
But in reality, they are the Fed’s middleman or strawman for monetizing the Federal debt.
This may sound bullish, but a month ago the Fed was buying all new Treasury issuance and then some. Now it’s nowhere close to doing that. In recent days the Fed has been absorbing only around a fifth of new Treasury issuance. Then it was 150% monetization. Now it’s 20%. Over the current 7 day period May 5-12, the Treasury has scheduled issuance of “just” $203 billion. The Fed will buy only $40 billion of that.
The Fed is also buying roughly $6 billion per day in MBS from the dealers. However, that doesn’t count this week because they are forward contracts and the dealers won’t get the cash until May 13, May 18, and June 22. Just be aware of the huge windfall the dealers will get the week of May 13. I cover that at Liquidity Trader.
Is this version of Fed QE enough to keep the pot boiling? I’m not so sure. Last month the US Government issued nearly $1.4 trillion in new paper, and the Treasury said on Monday that in May and June it will plunk another $1.6 trillion on the market. We’ll know the distribution of that later today when the TBAC issues its updated estimate for the quarter. I’ll cover that at Liquidity Trader.
So is the Fed doing enough to keep the short term bull trend going? Take a look at the daily technical setup.
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I wonder if there are any monetary surprises as the desk at the New York fed is in continuous contact with primary dealers and must know when they are under stress
What is surprising is the fact that they are sometimes caught so flatfooted. Case in point 1) last September, 2) the COVID 19 response.