Earlier this week we predicted that the US Treasury would wind down its SFP program, unleashing $200 billion in 56-day non-rollable "Fed bonds" on the market. We predicted this would occur by mid-February. As of a few minutes ago, the Treasury has just confirmed that starting February 3, this will be precisely the case. Per the Treasury, supplementary financing account to fall to USD 5bln, with the reason being the traditional explanation: decreasing funds in account as country nears debt ceiling.
As the revised table below shows, each Thursday beginning February 3 we will now see an incremental $25 billion in extra liquidity as the maturing 56-Day CMB is not rolled.
From the US Treasury:
Treasury Issues Debt Management Guidance on the Supplementary Financing Program
WASHINGTON – The U.S. Department of the Treasury’s Assistant Secretary for Financial Markets, Mary Miller, today issued the following statement on the Supplementary Financing Program:
“Beginning on February 3, 2011, the balance in the Treasury's Supplementary Financing Account will gradually decrease to $5 billion, as outstanding Supplementary Financing Program bills mature and are not rolled over. This action is being taken to preserve flexibility in the conduct of debt management policy.”?
Here is what we predicted on January 24:
Here Comes Another $25 Billion In Excess Weekly Liquidity To Ramp Up Stocks
Frequent readers may recall that 11 months ago, when the economy was
falsely rumored to be doing better, and the Fed was expected to take
baby steps in withdrawing liquidity (only to end up having to inject
another $900 billion shortly... and probably much more soon), one of the
key mechanisms used was the Treasury's Supplementary Financing Program,
whereby the Treasury would issue 56-Day Cash Management Bills each week
with a $200 billion ceiling. In addition to funding the Treasury with a
$200 billion debt ceiling buffer, the program was supposed to extract a
fifth of a trillion in liquidity which would be locked into the rolling
of each 56 day bill (each one amounting to $25 billion) up to a total
of $200 billion, as disclosed each day in the Treasury's DTS SFP Table 1 open
cash balance. Well, not even 11 full months later, it is now time to
unwind the program. The immediate catalyst for the unwind of the SFP is
that the Treasury will most certainly breach the debt ceiling by the end
of March unless it gets the benefit of the $200 billion buffer, which
counts toward the total debt issued by the UST. However, what
that also means is that the US stock market is about to become awash
with another $25 billion in suddenly free cash every single week, until
the entire $200 billion SFP buffer is depleted. In other words,
take the liquidity impact of POMO, which is roughly $25-30 billion a
week, and double it! We are confident the US Treasury will announce that
beginning with the week of February 14, it will no longer roll maturing
56-Day Cash Management Bills, which means that for the ensuing 8 weeks,
one on every single Thursday, there will be a total of $200 billion in
incremental liquidity flooding the market, and probably sending stocks,
commodities, and everything else that is not nailed down into the
stratosphere all over again.
Below is a table laying out our
estimated weekly liquidity boost. We believe the starting date for the
SFP winddown will be the week of February 14, although we could be off
by one week in either direction. (Zero Hedge update: February 3 seem just about right).
makes sense, especially when considering of our expectation that the
Fed will force the market to do a repeat performance of 2010, whereby it
goes parabolic through mid-April and then it is smashed in another
flash crash like event due to some exogenous variable, opening up the
path for further Quantitative Easing. That said, it is likely that the
PDs and the Fed's OMO will now orchestrate the perfect market boil up
over the next 2 months as more than ample liquidity chases stocks at
increasingly ridiculous multiples until the point where everything goes
bidless just like on May 6.