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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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From: russwinter	11/1/2005 9:32:52 AM
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Might start to get interesting again on the downside? End of quarter window over as well. The jam jobs too? We will see how the long end of the market reacts to the quarterly refunding Wednesday. 4.27% six month bill at yesterday's auction, versus 4.55% on the ten year. by Steve Northwood, Tuesday November 01 2005 wallstreetexaminer.com Last night the Fed funds rate averaged 4.02%. I guess that leaves no question as to the outcome of today’s FOMC meeting. Right on cue the Fed funds rate began jumping after the close of the last maintenance period (last Wednesday) and quickly climbed to the new perceived target. Yesterday's $4 billion add via an overnight repo did much for the day's equity rally, but didn't do much for the overall liquidity pool. How so? The small adds by the Fed over the last few days that have spurred this two day rally have occurred as the Treasury began to suck the life out of the real economy by spending money our system can't generate. Over the next three days the Fed is facing $20 billion in expiring repos. At the same time the Treasury will be withdrawing $28 billion in expiring TIO and borrowing an additional $12.6 billion to pay end-of-month bills. That's a total of $40.6 billion for Treasury, and $60.6 billion including the Fed. How likely is it that the Fed will shovel enough into the furnace to cover that drag? This is the largest group of expirations in the shortest period of time I have ever seen. I know the first few days of a month are usually jam time, but the rest of this week looks a lot like the first week of January. This morning will likely be posturing, but if the afternoon doesn't end lower, I will begin doubting the power of liquidity (or lack there of).

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