The US Treasury announced today that it would inject another $30 billion into the markets, in an attempt to forestall systemic meltdown. It will pay down another $30 billion in T-bills on March 4.
This brings the 2 week total to $155 billion and it is NOT ENOUGH. Investors and dealers got back $55 billion in cash on Tuesday and another $41 billion today, but they are not buying longer term paper with that cash. The continue to hold short term paper. Some bought stocks yesterday, but today margin calls against losses in longer term Treasuries have spread into stocks.
I have been forecasting this since the bond market turned last summer. The process is unfolding as expected. We had guessed that once the 10 year yield rose above 1%, the problems would start and cascade as bond prices fell and highly leveraged dealers got slaughtered.
Because these massive cash injections from the Treasury are not stemming the meltdown, the Fed is likely to follow up with its own intervention.
This could have an effect opposite to the one desired. It could trigger a collapse in market confidence. Instead of buying more paper, dealers might opt to use the cash to pay down debt and deleverage.
It’s likely at this point that they are approaching zero capital. At this point, they are merely straw front men for the Fed.
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For more on this see Treasury Announces It Will Inject ANOTHER $25 Billion For $125 Billion Weekly Total.