A $10 billion Treasury TIO expires without being replaced, and EZ only replacing the $8 billion expiring Fed repo with $3 billionn ocoupon pass.
Fool Me Twice?
by Lee Adler, Friday February 18 2005
The Fed came to the table Thursday with less than the market needed to smoothly settle the $11 billion in new 4 week Treasury bills. Finally, without sufficient fuel in the tank, the market's engine sputtered. (Note: This article appeared first in the Wall Street Examiner - Professional Edition, a premium, subscription based service. It has been reposted on a delayed basis in the public side of the WSE. Publication of the subscription content on the public side of the WSE will end next week. Subscribe here.)
The Fed's primary dealers had lots of time to prepare for the huge refunding earlier in the week. They were able to digest that with far less trouble than I thought possible. But they must not have ben paying close attention to the Treasury's zero cash balance, because the size of the 4 week bill auction apparently caught them off guard. Of course, the pundits will find lots of excuses for the market's behavior in today's conflicting economic data, but we all know the real reason. Al didn't step up. He brought some cash to the table, but it was mostly overnight money, and not enough to cover the payment for the T-bills. Voila! Market sinks.
Fool me once, shame on you, fool me twice... whatever. Friday is tax refund day, and we know what happened the last two Fridays when the Treasury sent $20 billion bolts of electronic adrenalin into the banking system. It's also the beginning of a long weekend. Greenspan has to replace $8 billion in expiring overnight repos. Will he? My guess is, no. He sat back last Friday and let the tax refund payments do the heavy lifting. Tomorrow, the Fed will likely stand idle, or at least not roll over the entire $8 billion. |
