As I reported on Monday, the short term LAMPP has turned red. It’s only by a hair, but it did cross the line. This is no surprise to us. I have been reporting to you every week that we were getting closer and that a signal change was imminent.
I have been warning you that Treasury supply would soon increase radically. As expected, the Federal Government is now moving to raise the cash it needs to pay back the funds it raided internally under the debt ceiling and to rebuild cash. The Treasury will issue net new debt of $54 billion over the next few days.
At the same time, buyers of that new debt will no longer have the Fed’s help in financing those purchases. In October, the Fed will start draining cash from the system, instead of adding $25-$30 billion per month to Primary Dealer accounts as it has been doing lately.