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They're Dulling Us To Sleep, So Beware! 11/3/21

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This market is nothing if not dull. Never short a dull market, right? I'm not so sure about that. I've seen dull markets melt down. 

This one, we'll just have to watch the keys. The first is at ES 4527. That's current trend support at 7:00 AM in NY. Then 4520 would also need to get taken out to start anything on the downside.  Conversely, if they clear 4635, the next stop would be 4650. There's no sign of anything dramatic happening either way. So, surprise us already. 

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Of course, all the action is likely after 2 PM, when the FOMC Hour of Power begins. Then Lord Jaysus has his Dog and Pony at 2:30 PM. He'll spew his usual lies and obfuscation. Will the market respond tomorrow with the usual Fed resubstantiation rally when he announces the Taper?

We also have the quarterly refunding report and TBAC report to the Secretary of the Treasury at 8:30 today. That's just as important as the FOMC because it will give us the Treasury issuance schedule for the current and next quarters. Today is as big as they come!

I'll be posting a report on that, and the month end Daily Treasury Statement totals for October, particularly from withholding. It will be interesting to see what those numbers show. 

For more: 

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All is quiet on the Western Front......

https://home.treasury.gov/news/press-releases/jy0464

 

The Committee then turned to financing for the upcoming quarters and recommended that Treasury begin across the curve reductions of nominal fixed rate coupon and FRN auction sizes starting in November.  The Committee recommended that cuts should continue over several quarters, which would maintain the bill share of total outstanding debt in between the 15 to 20 percent recommended range.  The Committee also reiterated their recommendation for modestly larger reductions in the 7-year note of $3 billion per month and the 20-year bond of $4 billion to both the new issue and reopening auctions this quarter.  As for TIPS, the Committee recommended incrementally increasing the 5- and 10-year TIPS auction sizes over the next two quarters, keeping the 30-year TIPS auction size unchanged, and continuing to monitor demand and liquidity conditions.

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So the Fed commits to a taper of $15 billion per month. The TBAC forecast says that Treasury coupon issuance will drop by $17 billion a month. There's a wash for you. 

Don't ever doubt that the Fed and Treasury work hand in glove and that the amount of QE is always tuned to directly absorb or indirectly fund in total, 85-90% of net new issuance. Been this way since 2009, when QE started. 

There's just one problem. The TBAC says $380 billion in new T-bills this quarter. Right now, they're back to paydowns because they're already hitting the debt ceiling. So when that gets lifted, another tsunami of bill supply is coming.

This won't end well. 

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They will continue MBS replacement purchases. That's a red herring because as rates rise, MBS prepayments will fall away to a base rate that's inconsequential. 

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4 minutes ago, DrStool said:

Bond yields are the Supreme Court of the market on the case of the Facts vs. Jerome Powell. 

But consider how Powell's stock portfolio is doing today - that's the final arbitrator of policy performance.

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