ART CASHIN: The Fed Will Take One Look At This Document Today And Conclude That It Needs To Taper Soon

treasury statement

The Federal Reserve’s Federal Open Market Committee meeting begins today and concludes tomorrow.

No one expects any major changes to monetary policy when the Fed releases its FOMC statement.

However, they will certainly be discussing the tapering, or gradual reduction, of their monthly purchases of $85 billion worth of Treasury and mortgage bonds.

While the Fed said that it will rely largely on measures of unemployment and inflation to guide monetary policy, it will certainly have to consider other forces in the market.

Art Cashin, the veteran trader from UBS, point to one such factor. From today’s Cashin’s comments:

A Tapering Tipoff For Sure – As the FOMC convenes today, one of the first documents they will probably consider will be last night’s Treasury statement on borrowing needs in the near future.  Here’s that lead:

  • During the July – September 2013 quarter, Treasury expects to issue $209 billion in net marketable debt, assuming an end-of-September cash balance of $95 billion.  This borrowing estimate is $14 billion lower than announced in April 2013.  The decrease in borrowing relates primarily to changes in cash balance assumptions [1] offset in part by lower receipts and higher expenditures.
  • During the October – December 2013 quarter, Treasury expects to issue $235 billion in net marketable debt, assuming an end-of-December cash balance of $80 billion.

During the April – June 2013 quarter, Treasury paid down $11 billion in net marketable debt and ended the quarter with a cash balance of $135 billion.  In May 2013, Treasury had estimated $35 billion in net pay-down and assumed an end-of-June cash balance of $75 billion.  The increase in the cash balance [1] was primarily the result of $66 billion in dividend payments received on June 28 from Fannie Mae and Freddie Mac under the Preferred Stock Purchase Agreement Program.

Let me help you translate.  Thanks to sequester cuts and some larger than expected tax, and other, receipts, your government will reduce its borrowing needs by almost 30%.  There’s no way that doesn’t lead to taper.

So, unless the Fed tapers its purchases of Treasury bonds, then all things being equal it will effectively become a larger player in that sector of the bond market.

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