More on that Supplementary Financing programmme to provide the Fed with some more cash.
Writes Rob Carnell of ING, in a note to clients on Thursday:
Holdings of Fed Treasury notes and bills have been falling, a function of the Term securities lending facility, whilst Treasury Auction Credit, repos and other loans have been rising in an offsetting fashion.
Whilst there is no science at work here, there is perhaps a psychological threshold when the Central bank’s holding of Treasuries fall below those of these other loans and operations. And the US$40bn boost will help shift the Fed’s balance sheet back in the right direction. It is worth noting that the T-bill auction is not going to cost the Treasury much. The 3m Treasury bill is currently yielding 0.02% (this is not a typo) Japanese style yields.
That said, at the rate that the balance sheet has been deteriorating, this will probably need to be followed up relatively swiftly with yet another injection. And with much of the issuance in 35-day cash-bills, this will have to be re-done anyway in a little over a month’s time.
Investment implications? In theory, says Carnell, this is bond negative, as it increases bond issuance:
“Though with all the declines in equities and bad macro data going on, this is very much an ‘in theory’ only comment.”
