Morgan Stanley: 16 Out Of 16 In Fed "Frontrunning" Projection As Fed Announced Schedule Of USTs To Be Purchased
Update: and, lo and behold, the market was more than prepared to front-run the Fed: the issues prescribed by MS for prepurchasing (and then selling into the Fed's bid), account for 92% of the $2.551 billion in total Bids Accepted (out of a total $20.949 billion in Bid Submitted). The result: a stunningly low 12.2% hit ratio as everyone was more than happy to sell to the Fed. And guess where the cash the PDs just got from the Fed for selling into its bid is going...
This weekend we presented an analysis by Morgan Stanley which attempted to anticipate precisely which bonds will be bought, and which will be excluded (in How To Front Run The Fed With The Best Of 'Em) in today's FRBNY Open Market Operation. To Igor Cashin's credit, his projection was spot on: his suggested 10 issues expected to be monetized all made this list. And, more importantly, the six exclusions were all correct as well, yielding his prediction a 16 out of 16, or A++ score. The full list of securities to be purchased at 11am this morning is presented below. To those who bought in advance of this action as we recommended, congratulations. To those who missed, it, the schedule of upcoming CUSIPs most likely to be purchased in the next 4 auctions through September 1, is recreated below. Once the actual results of the auction with notional amounts is disclosed post auction, we will update this post. Regardless, the massive rip in Treasurys over the past week begs the question: was the action merely one massive frontrunning attempt, and is today's weakness in the Treasury complex just the unwind of that trade...And as for equities, now that POMO is back, it is worthwhile to remember that on POMO days, the market is up about 99.9999*% of the time.
The just released announcement of eligible and ineligible treasurys for monetization (together with the previously presented reason for exclusion):
And below is the list of most likely inclusion candidates in upcoming futures.