Thursday, July 23, 2009

Treasury auctions

Karl Denninger at the Market Ticker just posted this on the dollar amount of Treasuries that will be auctioned in the next week:

70 day CMBs, $30 billion (tomorrow)
13 week Bills, $32 billion (July 27th)
26 week Bills, $31 billion (July 27th)
52 week Bills, $27 billion (July 28th)
2 year Notes, $42 billion (July 28th)
5 year Notes, $39 billion (July 29th)
7 year Notes, $28 billion (July 30th)
19 year, 6 month TIPS (reopened), $6 billion (July 27th)

That's two hundred thirty-five billion dollars over the next week!

A quarter trillion dollars of bonds will be sold next week. The Fed has been increasing its purchase of Treasuries lately because the amount is becoming too great to absorb by the market. So here we are talking about the event horizon where issuance becomes too great and creditors deem that the risk of default/devaluation by money printing is too high.

The Fed still has the same two choices that I've been harping on for quite a while:

1. Stop the insanity of purchasing treasuries that the market cannot absorb and FORCE the government into clamping down its spending. This is the California solution.

2. Continue purchasing excess unsold treasuries at the auctions or in the open market in order to keep rates low until the dollar is inflated to oblivion. This is the hyperinflationary scenario. The markets are pricing in this scenario. If it wasn't, we would see a stock market drop of massive proportions.

I don't want to be depressing nor a fear monger, but this is where the situation goes parabolic and you need to be prepared for it.

No comments: