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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Augustus Gloop who wrote (8163)	8/26/2007 1:20:16 AM
From: Hawkmoon	Read Replies (1) \| Respond to of 33421

I'm not convinced we'll get the rate cuts the street wants. Even if we do are they going to be in the time period expected? Maybe I'm mistaken, but I believe historically the Fed Funds rate has generally been marked lower than the 10 year T-Bill. But for the past year, the 10 year bond has yielded between .25-.50 basis points below the FF. And that suggests that the Fed is going to have a hard time not following the overall yield for government debt. After all, why should the government be able to borrow money at a lower interest rate for a 10 year bond than commercial banks have to pay each other for commerical paper pegged to the FF rate? Historical FF rate vs 10 year T-Bill: federalreserve.gov federalreserve.gov Something wrong about that.. And it's been going on for some time.. My theory is that, as the US economy has grown, the level of outstanding US government debt has not grown to the same extent. It's sad to say, but maybe the US government isn't issue ENOUGH debt to meed the demand for it domestically and from overseas investors (read China). And since 1/2 of the national debt is the Fed has had to rely upon the public Government debt to inject liquidity through repurchase agreements, while almost 35-40% of the total national debt consists of intergovernmental holdings (unfunded liabilities which primarily consist of SS trust fund "deposits" which must be repayed into the trust fund at some point in the future). treasurydirect.gov treasurydirect.gov To inject liquidity, the Fed has to buy T-bills.. and this buying pressure, combined with large foreign holdings, seem to suggest that the downward pressure on yields that results has created problems with Fed operations. Am I wrong on this? Hawk