November 20th, 2012
Treasury Announces Cash Management Bill That Will Soak Up All Turkey Gravy Fed Market
by Lee Adler, Wall Street Examiner
The Fed is settling nearly $23 billion of its QE3 MBS purchases today and tomorrow. This is the second round of QE3 cash hitting the market. The first was last Wednesday, with a total of nearly $37 billion. These settlements would normally provide a lot of “juice” for the markets as the cash from the sale of the paper that Primary Dealer sold to the Fed hits their accounts. However, last week the Treasury effectively sopped up $25 billion of it by issuing $25 billion in Cash Management Bills (CMBs). Normally when the Treasury issues CMBs, the Primary Dealers purchase virtually the entire offering. Much of the cash they got from the Fed had to be committed for that purpose. Follow up:
Last week’s CMB offering was not a complete surprise. The TBAC (Treasury Borrowing Advisory Committee) had two of them, totaling $68 billion, on its forecast for November. That was the second one. The Treasury actually did sell two CMBs in the last two weeks, totaling $50 billion.
Today the Treasury announced that it would sell yet another CMB, this time for $20 billion. Therefore, instead of the Primary Dealers being flush with another $23 billion in cash from Fed MBS purchase settlements, with no place to put it, along comes Tim Geithner to grab almost all of it.
The Daily Treasury Statement for November 15 showed that the government had $23 billion in cash on Thursday. That compares with $49 billion on November 15 last year. There was also a sharp drop in withholding tax collections last week relative to the same week last year. Whether this is due to the after effects of Mega Storm Sandy, or the sudden onset of a deeper malaise, is too soon to tell. But the extra boost that the financial market would have gotten from the first settlements of QE3 cash has been countered by the issuance of these CMBs.
Here are the details on today’s announcement.
Term and Type: 21-Day Bill
Offering Amount: $20,000,000,000
Auction Date: 11/20/2012
Issue Date: 11/23/2012
Maturity Date: 12/14/2012
PDF version of the announcement
XML version of the announcement
Editor's note: A CMB (Cash Management Bill) is a short-term instrument used by the Treasury to cover shortfalls in revenue that are temporary. They differ from the issuance of Treasury Bills which are part of the permanent debt structure produced by a deficit. In simplified terms, a CMB is similar to a "payday loan".
Stay up to date with the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, along with regular updates of the US housing market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Try it risk free for 30 days. Don’t miss another day. Get the research and analysis you need to understand these critical forces. Be prepared. Stay ahead of the herd. Click this link and begin your risk free trial NOW!