US: $1.733B Coupon Purchase 2020-09-17 Source: NYFed treasury securities operations
This is Treasury purchases only. The Fed also settled $121 billion of forward MBS purchases as part of the monthly MBS settlements that take place in the third week of each month. There’s one more installment in for September coming on Monday, with for $22.7 billion.
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Weekly forecast update to be posted Friday.
The selloff that we expected as a result of the scheduled month end liquidity shortage happened.
Just one problem.
It came a week later than expected. Unfortunately, in a business where timing is everything, that matters. When the selloff didn’t happen right away, I stopped expecting it. Ooops. Apparently we need to build into our forecasts an allowance for a one week lag between money injections and market reactions.
So this week, the market had a little Wile E. Coyote moment, looked down, and plunged. But suddenly yesterday, it sprang back to life.
Why? The Fed didn’t step in. It is maintaining its schedule of about $18 billion per week in Treasury purchases, and a similar or slightly larger amount of MBS purchases which varies according to the amount of MBS prepaid off the Fed’s balance sheet the prior month. No change there.
As we know, those are forward contracts which only settle in the third week of the month. The September settlements start Monday, September 14. We need to watch out for that.
In the meantime, Dr. Evil’s sidekick, Mr. Minus-chin, the keeper of the US Treasury cash hoard, rode to the rescue yesterday.
Should we expect more of the same?
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