I just want to give Liquidity Trader Money Trends subscribers a quick heads up. We always expect extra liquidity around the middle of the month, and we look for rallies at this time because of it. But we just got a little more juice from Doctor Yellen.
The US Treasury is again going hog wild with T-bill paydowns, announcing $62 billion over the past week alone. There’s actually a net paydown in April, after new coupon issuance. Extra slosh for the party.
And, of course, this week is the Fed’s regular monthly MBS QE purchase settlement week April 14-21. They’re pumping $93 billion into Primary Dealer accounts this week. The dealers have been up against it in managing their bond inventories, and the Fed and Treasury are, as always, doing whatever it takes to rescue them.
So all the explanations that you are seeing in the media about why Treasuries are rallying are just so much BS from the clueless mob. It’s about money plain and simple. The Fed and US Treasury are doing a great job of manipulating prices in the short run by pumping a combined $185 billion into the markets, most of it directly into the accounts of Primary Dealers in a very short period.
We were prepared for and expecting this liquidity to boost the markets this week as usual in the third week of the month, but the additional T-bill paydowns over the rest of the month are a new wrinkle that will add even more liquidity than we expected. The end of month period may not be as dry of funding as usual.
This too shall pass, and we know that the end is nigh!
I will cover the issues in depth in one or two subscriber reports this weekend. That will include additional detail on Primary Dealer positioning. Stay tuned!