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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: SeaViewer who wrote (26313)	2/14/2005 1:28:53 PM
From: russwinter	Respond to of 110194

Interesting that there isn't enough grease on the skids to keep the Fed Funds rate from rising, classic supply - demand problems, no doubt made more difficulty by the relative absence of foreign custodials. Awfully powerful Uncle Ernie urges right now, EZ needs to stay away from playgrounds. Also a strong Pinnochio effect trade developing, on gold and USD. Time to send in the Volkssturm? lonesentry.com Hold the Line by Charles Mackay, Monday February 14 2005 The Fed will try to hold the interest rate line, as the Treasury's quarterly refinancing settles this week. The Fed added $3.5 billion in overnight repos* to the repo pool Monday. Although the Treasury made a repayment of $5 billion through the expiration of a special 3 day T-bill today, the Fed Funds rate was starting to move higher Monday morning, to 2.56%. The Fed reacted to bring the Fed Funds rate back to its target level. Apparently the Fed’s $9.75 billion net addition to the repo pool last Thursday (February 10), which is still in the pool until Wednesday (February 16), was not enough to restrain rates. Although the primary concern of the Fed on a daily basis is adjusting the size of the repo pool to implement Fed policy goals, the Fed also must consider new Treasury auctions, changes in the Treasury balances, banking problems, the interbank Fed Funds rate, and many other factors when it decides what to do on any given trading day. On Monday, it was motivated by a market pushing rates higher than its target rate of 2.50%. Tuesday’s settlement of almost $40 in new Treasury bonds will be followed by the settlement of almost $12.5 billion in new Treasury bills Thursday. So far in February, the Treasury has borrowed about $6 billion more than originally planned. This indicates that the February federal budget deficit may also be higher than projected, and may come in over $100 billion. With the net settlement of $47.5 billion in new Treasuries this week, liquidity in the markets will remain under significant pressure as Wall Street pays Uncle Sam for its paper. *The monetary base is mostly US Treasury bills and bonds the Fed purchases, plus temporary repos. A repo, short for repurchase agreement, is an agreement between the Fed and brokers from the primary group of 22 approved Treasury dealers. Usually one dealer sells the Fed a Treasury bill at a specified price with a commitment to buy the security back later for another specified price. The difference is based on the interbank interest rate, called Fed Funds rate. Most repos are overnight transactions, with the sale taking place one day and being reversed the next day. The Fed also makes occasional outright purchases of Treasury bills and bonds, which mostly occur during and after Treasury bond auctions. The monetary base is ‘high-powered’ money – sometimes called ‘super-money’ - which is pipelined directly back to Wall Street. It’s used by major brokers and beyond to Main Street as a base for leveraged credit expansion, i.e. buying more US Treasuries, and stocks, mortgages, etc..