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January has begun with net Treasury paydowns and strong cash injections into the financial system, supporting asset prices. This near-term liquidity boost will reverse later in the quarter as Treasury issuance accelerates sharply. Historical patterns and Treasury guidance point to a large wave of net supply through late March, likely overwhelming modest Fed QE. With hedge fund participation in the Treasury basis trade no longer expanding, the risk of pressure in the Treasury market is rising. Liquidity remains supportive for now, but the balance is shifting, and the Treasury market should be monitored closely for early signs of stress.
This report explains and illustrates the facts that inevitably lead to this outlook, and suggests how to view this context in your trading strategy.
This report disdains Wall Street mythology, shows the real data and illustrative charts that clearly define the issues. It suggests your investment strategy for dealing with the facts, as opposed to the Fed or Street narrative.
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