Good morning: A lot of people have said that the doubling of the buyback program at Treasury combined with persistent support in reserves by the New York Fed is all a ploy to get us through the midterms. Have you considered that maybe it’s really a ploy just to get us through September 15? The European Central Bank will likely hike rates this week… the CPI number comes out on Friday… the Fed meets next week… and the Bank of Japan has its decision (a likely rate hike on the 18th). But it’s the 15th that has my attention… because it appears they are actively managing the central banking system around this threat. Next Tuesday, taxes start to come out of private bank accounts and shift to the Treasury General Account at the Fed. This is a process of draining banking reserves… On the exact same day, we’re going to see about $119 billion of Treasury notes that bond dealers will need to finance. This is 3-year, 10-year, and 30-year notes… and then a 20-year auction will happen that afternoon… All while the Fed kicks off its two-day meeting that morning… Combined with Triple Witching that happens next Friday. So… there will be less cash… more collateral (and possibly higher yields if auctions go sideways)… all on the 15th. I’ll remind you that the Fed and everyone else is taking their lesson from the 2019 repo spike… as it happened around the tax drain with overnight rates imploding from 2.4% to 10%. The Fed had to step in with a temporary facility to stabilize the repo market. That facility is now permanent. The Fed was pumping about $40 billion a month into the banking system starting in December 2025 through that facility, and when we hit a critical threshold, it tapered. They went into the tax season in April 2026 with an aggressive plan. Today, reserves are at $2.93 trillion, and the Treasury General Account has hit its target. The surprise next week isn’t a crisis…. It would really be the optics of everything that they have been doing… an active management of the financial system that isn’t allowed to clear and isn’t allowed to have price discovery because of ongoing liquidity fears. Imagine a scenario where repo tightens, the facility is used, and we see the New York Fed have to pump $10 billion to $20 billion through repo… on the same afternoon that the central bank raises interest rates by 25 basis points… Yesterday, I did 90 minutes on liquidity and talked about repo… and the Fed rates and other mechanisms. Today… at 12 pm, I’ll dive into momentum and mechanical buying. TRADERS FOCUS We’re coming into the week off a holiday. The tech names are out front. Everything else is slow out the gate, except for energy and the power producers.
We’re getting a little lift in some of the materials names too. Freeport (FCX) is up 2.3% this morning on the back of copper hitting new highs. The rest of the metals complex is mixed. Gold and silver are down a little, platinum is up... Continue reading this post for free in the Substack app
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