Rechecking On Bill And His Newfound Followers

The benchmark 10-year US Treasury has obtained some bids. Not long ago the certain harbinger of bond rout doom, the long end maybe has joined the rest of the world in its global pause if somewhat later than it had begun elsewhere (including, importantly, its own TIPS real yield backyard). Even nearer-in inflation expectations have rounded off at their current top. Perhaps no more than a short-term rest before each rising again, then again with the rest of the world’s markets acting similarly it’s fair to ask which end is actually leading?

More importantly, if it’s the wrong end, why would that end be leading? Especially right now. As I wrote a few days ago, there doesn’t appear to be a single thing going wrong. Quite to the contrary, what’s good (in the textbook sense) is good to levels never seen before:

That’s the thing; as noted earlier today, everything seems to be lined up just perfectly. Vaccinations are rolling out, more states (even California) loosen themselves up, and the government continues to throw cash around to anyone who can breathe (and quite a few, apparently, who aren’t taking breaths). Trillions upon trillions before then Jay Powell and the Fed’s similar-sized puppet shows.

With that last item in mind, it’s clear in the Fed’s data that Uncle Sam’s checks have hit their mark – transferred out of TGA into the hands of beleaguered American taxpayers and thus being transformed into commercial bank deposits. In addition, Treasury refunding which has further drawn down government cash, moving that over into bank reserves.

As of the latest figures for this week (Wednesday), during the last nine weeks the TGA has been drained of an enormous $615 billion (50% more than the total balance had ever been at any time before March 2020) while $739 billion has been added (including via QE) to an already-sizable pile of bank reserves now just shy of $4 trillion (a record, by far).

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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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