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U.S. Yields To Move Higher As Federal Reserve Purchases Lag Treasury Issuance

Published Mon, 18 May 2020 08:03:01 -0400 on Seeking Alpha

The Fed is providing a lot less USD liquidity than many believe and is not keeping pace with bond issuance from the US treasury thus far in Q2.
Over the intermediate term, gold will track the CPI lower as it moves into deflation. Declining U.S. retail sales, industrial production and GDP growth are leading price index indicators.
Yield Curve Control is under consideration by the Federal Reserve, but I view it as a negative and ineffective way to conduct monetary policy.
According to the NY Fed System Open Market Account Holdings page, the Federal Reserve has purchased approximately $650 billion in Treasury securities thus far in Q2 (starting April 1 2020). These consist of Treasury notes, bonds and T-bills. The holdings rose from approximately $3.1 trillion to about $3.75 trillion. The Fed has purchased these securities in the open market with newly created USDs in what is essentially an asset swap with the banking system - USD reserves for bonds. Meanwhile, the US Treasury, according to the Treasury Direct website, has issued about $1.6 trillion in the same period.
This most likely means yields are going to move higher and interbank liquidity will tighten again. The Treasury has issued this quarter so far at approximately 2.5 times the pace the Fed is buying at. Because primary dealers and large banks mainly hold bonds or USD reserves and are required to bid at Treasury auctions, the large issuance is draining USD reserves and creating an oversupply of bonds. The Federal Reserve is trying to alleviate this. Many will cite Fed liquidity as a bullish tailwind for risk and inflation-hedge assets but in reality, that liquidity is being absorbed by large Treasury issuances. The Fed is not keeping pace.
Stan Druckenmiller aptly pointed this fact out in a recent interview as well. The Federal Reserve is electronically printing new US dollars to buy bonds in the open market in an effort to synthetically keep yields down and accommodate the huge issuance and supply... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
IAMGOLD 3.33   0.0 -0.21 0.00 7.33
KINROSS GOLD 4.73   473.0 0.01 0.00 3.31
NEWMONT MINING 38.66   0.0 -0.14 0.56 1.47
WHEATON PRECIOUS METALS 27.64   0.0 -0.05 0.36 1.29
RANDGOLD RESOURCES 17.13   0.0 -1.20 0.16 0.93
ROYAL GOLD 123.13   86.1 1.43 1.06 0.85
PAN AMERICAN SILVER 16.78   0.0 -0.20 0.14 0.81
GOLDCORP 11.19   0.0 -4.77 0.00 0.70
SILVERCORP METALS 4.16   0.0 0.00 0.03 0.61
YAMANA GOLD 3.30   0.0 -0.14 0.04 0.60
ANGLOGOLD ASHANTI 19.59   0.0 0.00 0.05 0.27
FIRST MAJESTIC SILVER 9.78   0.0 -0.87 0.00 0.00
SPDR GOLD TRUST 141.32   0.0 0.00 0.00 0.00


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