Treasury is Using Most of QE3 Dollars This Week

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.

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.

CUSIP: 912796DN6
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”.

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