Prices of Treasury coupon securities have posted modest losses in overseas trading. I do not see a strong impetus in the news for the small declines in Treasury prices. Stocks around the globe are trading well with robust gains in Europe and healthy advances in Asia. So I will opine that those gains and futures market indications of solid gains when trading begins in the US are sapping strength from bonds.
Bond traders also confront the uncertainty of the FOMC meeting and the policy statement from that group at about 215PM New York time. I believe that the FOMC will acknowledge the continued improvement in the economy but will genuflect to the depth of the recession and its associated headwinds and will reaffirm the need to hold the funds rate at an unusually low level "for an extended period".
At the meeting with senior Treasury official which I attended on Monday I have noted previously that those officials expressed real concern about the downside risks to the economy (as did blogger Michael Panzer of Financial Armageddon) and since I think that the relationship between the Treasury and the Federal Reserve has morphed into something somewhat incestuous I suspect that the Federal Reserve will not jump off the reservation and take the first baby steps to exiting its easy money policy. (I also apologize for what could be the longest sentence in the storied history of Across the Curve. Com.)
Separately, the Treasury will release details of the November refunding this day. The auctions will be held next week. The conventional wisdom anticipates that the Treasury will offer about $ 40 billion 3 year notes, $ 25 billion 10 year notes and $ 15 billion Long Bonds. The Treasury will also address funding issues.
The rate at which the Treasury issues bonds is a little frightening and given the prospect of trillion dollar shortfalls as far as the eye can see the Treasury will at some point find it necessary to introduce some wrinkles into the funding mix. As programs such as the TARP unwind that will replenish the Treaury's coffers somewhat but that amount seems trivial in relationship to the amount that the Treasury is issuing.
Here are some numbers to put the borrowing appetite of the Federal government into some perspective. The Treasury lifted the three year note from its dusty pedestal in the bond museum and reintroduced it last November. At that time the issue size was $ 25 billion. The one that they will announce in an hour or so will be about $ 40 billion. That is an increase of 60 percent. I doubt that they will raise it by another 60 percent in the upcoming year but since they still need bucks from whence will that come. The more pressing issue is not today but is in the not too distant future.
This month when they offer the 3 year note they are raising all new cash as there is no maturing 3 year note.
