EC Which Reflation Are You?

I am very much prone to bludgeoning several long-deceased equines, and given what’s really going on with the Fed’s reverse repo (and nearly all commentary unhelpful surrounding it) this gives me yet another chance to really reuse my cudgel on at least two of them. This another opportunity to fixate more upon bank reserves, a forever topic until everyone learns the truth about them, as well as revisiting “too many Treasuries” in light of their auctions and the secondary market following them.

RRP has brought together both “too much money” as well as “too many Treasuries”, convenient for perhaps only me. The data has been consistent (thus beating horses long after their demise) as to how it cannot be either of those. Bank reserves don’t count much even for the reverse repo right now, while both secondary and primary market Treasury prices cannot possibly refute this Treasury glut idea any more than they have for years.

They still do it anyway.

Just today, the government sold 5-year paper which just so happens to be the third note auction at that maturity since the more fateful one conducted back on February 24. It had been this other one three months ago which, taking place during the Fedwire interruption, was perhaps a warning of what would follow the very next day with that uniquely awful 7s auction.

And then everything around the world that has followed.

Ever since then, demand has only gotten stronger and much more so once anti-reflation came to more completely dominate the entire space going back, like reverse repo, to the same exact point in mid-March.

Today’s 5s affair was simply blistering: $152 billion in bids for $61 billion being offered, a bid-to-cover the highest since last September. The median accepted rate of 74.1 bps in yields was nearly 6 bps below where Treasury said the constant-maturity 5-year had closed in the secondary market at the end of today’s session. The auction low of 8 bps, well, you get it.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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William K. 2 weeks ago Member's comment

"Reflation"??? Does that mean re-inflation after some DE-flation? Or is it renewed inflation, the goal of the federal reserve bank for most of the past 100years. Or is it another piece of jargon destined to keep some of us in the dark? Double-talk can certainly be confusing.

Sometimes beating that dead horse produces tender horse steaks, other times just pureed horse.

The big problem now is that the fed either has no clue or is very evil, or possibly both. And added to that our new LIBERAL president who does not understand about spending and debt being closely related. And that additional mountain of inflationary spending will lead to debt that will certainly be a HUGE burden on the backs of somebody in the future, possibly those not even born yet. Has he ever heard about a crushing debt load???