Courtesy of Lee Adler of the Wall Street Examiner
Here are a few of the key bullet points in this report.
• Traders returned to buying Treasuries last week after a brief selloff in the wake of the Fed announcing QE 3. Yields failed to break through the major downtrend line on the chart leaving the downtrend in force for now.
• Traders had been front running the QE 3 announcement by selling dollars. When the Fed made it official, the selling increased, but it then abruptly reversed. However, a long term momentum indicator joined a 2 year cycle indicator on the sell side. It’s unclear who will win the World Central Bank Race to the Bottom in currencies.
• The Treasury continues to have the good fortune of seeing a very strong rebound in tax collections throughout September. It was able to pay off the $70 billion in expiring CMBs last week.
• That bill paydown put a net of $32 billion in cash back in the pockets of the dealers and others after the issuance of new notes and bonds. The excess liquidity flowed back to Treasuries instead of stocks and commodities after a mysterious flash selloff in crude oil over a period of a few minutes one day last week. The “invisible hand” of Tim and Ben may have been at work.
• The Fed’s purchases from Primary Dealers of $85 billion this month in MBS and net Treasury purchases under Operation Twist will be enough to fund almost 100% of new Treasury supply. Foreign Central banks were also buyers in size last week. Banks have not been buyers lately, but as long as the Fed absorbs most new supply and FCBs remain modest buyers, there’s probably not much chance of a big selloff in Treasuries. A rigged market is a rigged market.
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