POMO Update

I have not reported on POMO (The NY Fed’s Permanent Open Market Operations) for almost two months and since The Bernank has been a busy bee as of late I thought it was time for an update:

Chart first – and immediately apparent is that we are hovering above the zero mark clinging to about $7 Billion (assuming I manually entered all those auctions into Excel properly). But in general the days of easy liquidity are apparently over – or at least on hold for now. Please recall that, according to prior observations, it takes a reset to the zero mark to raise the odds for any medium to long term downside. And I have an inkling we’ll keep hovering around here for the remainder of the season. Of course you can expect an update on this if I see any evidence to the contrary.

However, the chart hides some curious details – here’s the tail end of my data panel:

When entering the data into Excel two salient observations appeared to be worthwhile sharing. For one this is the first time in a long time that I saw an entry in the Sale category – more specifically the last time I see one in my data is May 21st, 2008. Secondly what really surprised me were the accepted/submitted ratios, which are huge in comparisons with the ones in the Purchase category. Again, I wanted to be sure and went back to 2008 – and those apparently were much more in line with what we continue to see in the Purchase category.

So, is the Fed starting to actively drain the swamp? Maybe – maybe not. Volar just alerted me that the Fed is apparently not really ‘draining’ – just ‘relocating’ as in selling anything below the 3-year and buying anything between 7-20-year. But wouldn’t we see additional purchases then soon popping up as well? The POMO calendar suggests just that but we do see sales listed as well but expected sizes on the Sale side clearly outnumber the ones in the Purchase side. So, perhaps we’ll get to the zero mark so coveted by the bears after all. Again, if anyone has any more insights to share on this please use the comment section.

Have a great weekend!

Cheers,

Mole