Lee AdlerThe patterns on the charts of T-bills and the 10 year note are unprecedented. Something terrible has happened in the market. The Fed will have to cut on Monday. Tuesday at the latest.
It has implications for stocks, too. Here’s what to expect next.
The market got way ahead of the amount of cash that the Fed was pumping into dealer accounts in February. That took a toll, and we’ve had a little “adjustment” over the past week. Here’s what comes next.
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We knew that Not QE would fall well shy of Treasury issuance in February, and that that would be a problem for the markets.
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The February supply increase caused the bond rally to stop in its tracks. But that will change in March.
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Update- A few minor corrections.
Federal revenues soared in January. Spending soared more. A lot more. Despite all that stimulus, the tax data suggests that the US economy is just stumbling along.
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The pause in the growth of the Fed’s balance sheet over the past 6 weeks isn’t what the pundits are telling you. Some are saying that it’s evidence that the Fed is not doing QE. They’re either gaslighting, or clueless. But we know what it is, and we know what happens now.
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Withholding tax collections are soaring. But despite that and the massive stimulus of skyrocketing government outlays and ever widening deficits, the ‘conomy is only so-so. Here’s why, what it means for liquidity and the markets. And of course, what you should do about it.
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I just discovered today that Liquidity Traders email system had malfunctioned and had stopped sending notifications to you last week. All posts were available here onsite, but you may have missed one over the last few days if you have not visited the site.
The emails are now sending again and you should be notified instantly when a new post is published.
I apologize for the inconvenience! My apologies as well if you have recieved multiple emails in the past few minutes as we cleared the block. Thanks for your patience and support!
Lee
With the light supply and the Fed money putting the wind at their backs, Primary Dealers got a gift on top of that. Coronavirus. The panic that induced has driven money out of stocks and into bonds. Just what they needed.
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Dealers cut back their fixed income inventories ever so slightly over the past month. They also increased their hedges, but again, slightly. They are still near historical record net long positions, and still carry historic levels of leverage.
With a bulge in Treasury supply on the way, is this where the bond market might trigger them throwing up their hands and saying WTF, despite the Fed?
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Also, I have republished Thursday’s Treasury market update due to a faulty posting with links to an earlier report. Those errors have have now been corrected. I apologize for the delay!
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