And soon it will end. Then what?
The Treasury calendar was heavy this week, with 3 and 10 year notes and 30 year bonds auctioned in addition to the weekly bill auctions. It got even heavier when the Treasury announced a surprise $15 billion cash management bill to tide the government over until June 15 tax collections and note and bond settlements.
About $9 billion in T-bills would have been paid down on Thursday 6/9, but the CMB issuance turned that into a $6 billion cash drain on the market. That’s not a big deal, but the swing from a paydown to a drain probably contributed to the market’s general tone of weakness. It’s becoming increasingly apparent that POMO alone, without the help of the FCBs and commercial banks, cannot do the job of keeping the both stocks and Treasuries levitated. Gains in one must come at the expense of the other.
Next Wednesday, $47 billion in new notes and bonds settle, net of the 6 day CMB expiration that day.
The new POMO schedule will reduce the Fed’s takedown of new debt to less than $20 billion a week from an average $22-23 billion per week over the past month. It will essentially end at the end of June, with two minor operations set for early July.
Monthly Treasury Statement data for May showed a big jump in revenues and a smaller deficit as a result. However, the revenue gain was a mirage due to lower tax refunds and calendar factors versus last year. Daily tax data suggests an economic stall.
Treasury yields remain in a downtrend as the Fed supported artificial market continues. The 10 year yield would need to close above 3.05 next week to signal a reversal. The dollar’s late rebound suggests that an 18 month cycle up phase is beginning. A weak sideways up phase would suggest that the dollar index could head into the low 60s over the longer term, while a move above 77.50 over the next month or two could mean that a floor has been set on the dollar in the low 70s.
Source: Wall Street Examiner
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