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Seven and a Half Weeks of Bullish Liquidity Ahead

It’s the most bullishful time of the year. The annual corporate tax windfall just hit the US Treasury cash account this week. Individual annual and quarterly estimated taxes will hit on April 18. The Treasury’s coffers will be stuffed with cash, and they will use it to pay down T-bills. They already have begun.

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Treasury supply is currently nil on a net basis thanks to big T-bill paydowns over the past week. At the same time, it’s the Fed’s MBS settlement week. Cash is pouring into Primary Dealer Accounts, to the tune of $119 billion this week. $77.5 billion of that already hit on Monday, March 14, and $14.9 billion hit on Thursday, March 17. The rest comes Monday March 21. Pump that much cash into dealer accounts in a few days, with no Treasury supply to be absorbed, and we see the results, a big pop in stock prices.

But they continue to sell bonds.

The markets should experience a hit at the end of March from the downward price pressure of Treasury coupon supply issuance, while the Fed is doing nothing, which suppresses demand. But then a real tidal wave of cash flowing into the market will start in mid April, when individual tax collections come in to the US Treasury, and that should give both the stock and bond markets a boost.

After that, things will get really bad.

This report tells you what to expect, when to expect it, and shows you exactly why (subscriber version).

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Posted in 1 - Liquidity Trader- Money Trends, Fed, Central Bank and Banking Macro Liquidity
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