Look Out! Massive Treasury Paydowns Are Almost Here

Lee Adler, in the Professional Edition of the Wall Street Examiner, gives reasons that, barring other factors, support continued bullish action in the stock market for the next two or three months. ~ Ilene

Look Out! Massive Treasury Paydowns Are Almost Here

Courtesy of Lee Adler

Excerpts:
 
Withholding tax collections continue to be very strong suggesting lighter than expected Treasury supply and huge paydowns of outstanding Treasury debt in April that should boost both stocks and bonds. [Strong tax collections increase cash in the US Treasury, allowing for lower than forecast levels of new supply (treasuries that the Treasury sells). This is bullish for stocks. It could also mean larger than expected paydowns in April, also bullish.] 
 
The coming week begins the month of no supply and lots of redemptions, with huge paydowns going back to holders of expiring weekly bills and CMBs. My initial guesstimate is for a paydown of $18 billion, assuming a 4 week bill size of $30 billion, same as last week’s. It could be more or less, but should be a paydown in any case. After that, it gets even easier over the balance of [the month] with massive debt paydowns coming as tax revenues flow in to the Treasury on April 15. 
 
[Paydown money] comes back into the accounts of dealers and other players. That could be tinder for a final blowoff in stock prices. 
 
Net new supply [of treasuries] in May and June is forecast to be modest at a combined total of $96 billion for the two month period. With the Fed still pumping nearly twice that amount into the accounts of primary dealers, on the basis of this data only, there’s no reason to turn bearish. Something else would need to go wrong. 
 

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