Our Bull Market Depends on THIS

Shah Gilani|February 2, 2024

Think you know what sparked the market rally that kicked off on November 1?

Good news on inflation?

The promise of rate cuts?

No… it was an often-overlooked announcement that came ahead of the Federal Reserve’s statement that day. (Which, as you know, has become a must-see event for Wall Street.)

It was the latest quarterly refunding announcement, or QRA.

And it’s just as important as Fed rate decisions.

QRA is a two-part announcement from the Treasury Department.

The first part is usually announced on a Monday afternoon, a month into a new calendar quarter. It tells us how much the Treasury needs to raise to finance the government’s current calendar quarter.

The second part, delivered two days later, at 8:30 a.m, tells us what mix of bills, notes and bonds will be auctioned.

Before the QRA, bond yields rose from mid-July’s 3.75% yield on the benchmark 10-year Treasury note to just below 5% as bond investors fretted the Fed’s “higher for longer” policy stance.

As bond yields spiked, the S&P 500 dropped almost 11% from its July 27 high of 4,607 to the October 27 low of 4,103.

Then came the QRA.

On Monday October 30, the Treasury announced estimated financing needs for the fourth quarter would be $776 billion, $76 billion less than expected.

Bonds and stocks took notice.

Then Wednesday morning (November 1), the Treasury announced the mix of bills, notes and bonds to be auctioned would contain more short-term bills and a lot fewer bonds.

That set the rally into motion.

Buy, Buy, Buy

First, the bond market rallied. Bond traders were encouraged by the government’s smaller than expected financing needs, and, more importantly, that there would be fewer coupon bonds to buy. They immediately began buying longer-dated notes and bonds in the open market, long before the upcoming auction.

Then, equity traders and investors, seeing bonds rally, started buying beaten-up shares of their favorite mega-cap tech stocks.

By the close of trading on November 1, the yield on the 10-year Treasury note had fallen from 4.88% on October 27 to 4.77%.

The S&P 500 was up 2.5% from Friday’s close.

And we were off to the races.

Bond yields continued to decline and stocks made new all-time highs.

That’s how important QRAs are.

And we’re seeing similar moves now.

The yield on the 10-year Treasury was 4.15% on Friday, January 26. On Monday, the Treasury’s QRA revealed their Q1 2024 financing needs would be $760 billion. That was $56 billion less than the $816 billion expected. The yield dropped to 4.08% that day.

When part two of the QRA was announced on Wednesday, January 31, it didn’t disappoint investors. Bonds rallied and the 10-year Treasury ended the day at 3.99%.

Some analysts have said that these QRAs are just as important as what the Fed says.

Maybe… But I’m betting they will be more important now. We’re in an election year. Debts and deficits matter… and those in charge want to paint our financial situation in the best possible light.

Expect to hear more about quarterly refund announcements this year… and we’ll be ready to take action when they come.