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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: russwinter who wrote (17451)12/2/2004 7:51:52 PM
From: mishedlo  Read Replies (1) of 116555
 
Plunger comments on coupon passes
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Coupon passes have nothing to do with money supply.

Money injections are done via repo and extraction via reverse repo. The Fed is simply making sure that the overnight rate settles at their 2% target. They do just enough repos to ensure that.

Coupon passes are by definition sterilised since any additional liquidity injected by the buying of T-notes is adjusted for in the repo operations so that liquidity overnight is not affected. Otherwise they would miss the 2% overnight fed Funds target.

At the margin coupon passes might reduce longer term yields, but compared to Treasury auction flows the amounts are tiny.

Plunger.
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