The US Treasury’s attempt to rescue the Treasury market began in mid February. It’s not going well. They’ve managed to stop the hemorrhaging. Prices have stopped falling over the past two weeks. But they haven’t turned the tide.
And that’s the problem. Primary Dealer inventories accumulated since last March are way under water. The dealers are the walking dead. If bond prices don’t rally, the Fed will have no choice but to start yield control and infinite QE, and it will need to do it soon.
The Fed must always maintain the appearance that their Primary Dealer strawmen, are alive and functioning as market makers as always. There’s no alternative. This month, the Fed and US Treasury have begun colluding to prime the pump, and they’re about to aim a firehose of liquidity at the problem.
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