Treasury Supply

Art Cashin Warns Bernanke Fans "Be Careful What You Wish For On The Deficit"

The venerable UBS floorman asks (and answers) an interesting question. With the re-institution of the payroll tax and higher level rates and with spending lowered by sequestration, will the Treasury need to offer fewer bonds? And if so, will the Fed remain steadfast in its purchasing 'size' (good for bond bulls since secondary demand will increase) or reduce its 'size' to meet the lower monetization needs of the Treasury (bad for equity bulls since flow is all that matters.) Thoughts below...

30 Year Prices At 3.18%, Highest Yield Since April 2012

Many were looking at today's $16 billion 30 Year bond auction to see if the same weakness that was exhibited by yesterday's tailing 10 Year would repeat. This did not happen, and in fact today's auction, concluding this week's offering of paper, was probably the tamest of the lot. With a When Issued trading at some 3.185% at 1 pm, the high yield of the auction came inside the WI, at 3.18% with 85.2% allotted at the high. The Bid To Cover also did not indicate any particular weakness, as the 2.74 B/C, just a fraction below January's 2.77, was well above the 12 month trailing average of 2.61. More importantly, unlike the Indirect weakness seen in this week's prior auctions, Indirects took down 36.4% of the offering: nothing to write home about, but also better than the 12 TTM of 34%. Directs were responsible for 14.5%, which left 51.2% for the dealer. Finally, while the pricing yield was the highest since the 3.23% seen in April of 2012, at this point what happens at the long end is largely meaningless, as the marginal buyer is virtually non-existent. Recall that as the Treasury itself said, "In Feb 2013, Fed Will Buy 75% Of New 30y Treasury Supply." And that is all that matters to quell concerns of any great rotation in or out of bonds.

"In Feb 2013, Fed Will Buy 75% Of New 30y Treasury Supply"

We urge readers to read the bolded section below, which comes straight from this quariter's Treasury Borrowing Advisory Committee (i.e., Primary Dealers) presentation to the Treasury Department, and explain, with a straight face, just how the Fed will ever be able to not only stop monetizing debt and injecting $85 billion of flow into the stock market, but actually sell any holdings.

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Market Forces

Stock World Weekly visits w/ Mark Hanna, Washington's Blog, Allan Trends, Lee Adler and Pharmboy. 

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Priced for Nirvana

But coincidentally, the ECB’s next Long Term Refinancing Operation (LTRO) is set for February 29...

Insider Perspectives On Liquidity, Funding, And Markets

Year end markets are infamous for distorting price action as illiquidity, bank and company window dressing, and risk paring tends to characterize investment decisions and valuation quirks.  In this market climate it can be challenging to differentiate between fundamental moves versus liquidity provisioning and the pursuit to flatten books and race to the finish line.  In the above spirit, typical year end position imbalances are suspicious as are global finance needs and the apparent dysfunctionality of funding market functioning and an information arbitrage between different markets in understanding of such minutia...The circular nature of worsening emerging and global fundamentals, lower sovereign growth prospects, associated financing challenges, lower asset valuations, regulatory cushions to such catalyzing asset sales, bank balance sheet illiquidity and, hence, funding stains tis the season.  Just a DAILY comment to elevate the ebb and flow adjustments of markets and policy makers to such linkages.