Courtesy of Lee Adler of the Wall Street Examiner
Here are a few of the key points in this report.
• Running out of cash, the Treasury was forced to unexpectedly sell cash management bills for the second week in a row. Over the past two weeks the Treasury increased its short term bill borrowings by more than $40 billion above what had been expected.
• While withholding tax collections were weak, most of the cash shortfall was due to the Fed redeeming some $26 billion in SOMA holdings since July. The Treasury was forced to pay those off. That was a result of the change in how the Fed carries out Operation Twist in July, and was not something for which the Treasury had budgeted.
• The surprise supply probably contributed to the weakness in the stock market as sentiment shifted back in favor of Treasuries
• A big end of month settlement looms. Whether the cash management bill that expires at the end of the month is rolled over or not will play a role in how much new supply hits the market then.
• Economists had adjusted their expectations upward as a result of the better than forecast performance of July data. Withholding tax data for August now suggests that they will get whipsawed again, and that August data will come in worse than expected.
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