This May Be The Most Important Treasury Market Update In Two Generations

Courtesy of Lee Adler of the Wall Street Examiner

There are 17 bullet points in this report that make it one of the most important research reports I have ever written. Major events may be about to unfold in the markets that will affect market trends in a huge way. Here are just a few of the issues covered in this report.

• Traders sold Treasuries at the end of the week, reversing yields from near their September lows.
• This was not a supply issue. Supply was very light, with only bills on tap this week at the auctions. Instead, this may have been an indication that buyers may be beginning to get cold feet from the signs that the economy may be growing at a little higher rate than widely ASSumed.
• The Treasury continues to have the good fortune of seeing very strong growth in tax collections through September and carrying over into October, with nominal year over year growth now at 7.4%, and real growth over 3%. There was a big surge in earnings inflation in September with average weekly earnings up over 4% y/y.
• The Treasury was able to pay off the $70 billion in expiring CMBs on September 17^th and has built a huge cash hoard more than double the cash on hand last year at this time. That could enable it to sharply reduce borrowing in October
• The Fed’s purchases of around $80 billion this month in MBS and net Treasury purchases from Primary Dealers under Operation Twist will be enough to fund 100% of new Treasury supply.
• This period is beginning to look a great deal like the mid 1970s when small investors stampeded into bonds, only to see their holdings destroyed by inflation and rising bond yields through 1982.

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