Liquidity Sufficient to Keep Bid In Treasuries AND Prevent Stock Selloff

Liquidity Sufficient to Keep Bid In Treasuries AND Prevent Stock Selloff 

Courtesy of Lee Adler of the Wall Street Examiner

Trends for next week:

  • The haircut to be administered to bank depositors in Cyprus, not yet finalized as of this writing, has again tilted the playing field to drive foreign capital into the US Treasury market, which should prevent an upside breakout and send yields lower in the short run. The 1.85 to 2.10 range should remain intact for a while. 
  • Treasury supply will be heavy this week, while support from the Fed is reduced at the end of the month. This would normally unsettle the market a bit. But much of the $100 billion in Fed pumping from mid month may still be available for deployment. That could keep bids under both Treasuries and stocks. 
  • Foreign central bank (FCB) buying (US Treasuries) is in the weak side of its short term buying cycle but renewed fears over the European financial crisis are likely sending more private foreign capital flooding into the US Treasury market, and more Fed cash will be on the way, so weak FCB buying should not be enough to slow the markets. 
  • Public buying remained a bullish factor for bonds. Panic in Europe would add to that. 
  • Recent strength in withholding taxes are resulting in a windfall for the government. Withholding tax collections for the 2 week period ended March 21 were up 11.5% over the corresponding period of 2012. That compares with a gain of 9.2% a week ago. This suggests that some sectors of the economy are much stronger than anybody realizes and may be overheating. Tax collections remain well above what can be attributed to the tax increase alone. 
  • The sequester could reduce Treasury supply by a small amount, which would be a bullish factor for both Treasuries and stocks. With less Treasury supply, more Fed QE cash would be available for stock and commodity speculation. 

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