"Flip That Bond" - 80% Of Today's POMO Is In Form Of 7 Year Bond Auctioned Off 3 Days Ago

Tyler Durden's picture

While it is unclear if the 7 Year bond auctioned off last week (our commentary on that partcularly weak auction rescued by Primary Dealers is here) Cusip: 912828QG8 has even settled yet (it certainly is not on the Daily Treasury Statement as of Friday), what is clear is that as part of today's POMO which closed 30 minutes earlier, that very issue accounted for a whopping 78.5%, or $6 billion, of the entire operation. As a reminder, Primary Dealers bought $15.4 billion of the auction on Thursday, and just as we predicted, couldn't wait to flip it back to the Fed. Indeed, 39% of the entire allocation has now been flipped right back to Brian Sack. And people wonder why Bill Gross is paranoid that in the absence of the Fed this thoroughly fake bid will no longer be there. And with PDs actually forced to hold the bonds they quote-unquote bid for, one wonders: what clearing price will be appropriate, once the flip game ends?

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slow_roast's picture

"The name is Bond, Junk Bond" -  The Treasury

redpill's picture

POMO martini, flipped not stirred.

LRC Fan's picture

This is...bullshit

-Rick Santeli



Quintus's picture

"...what clearing price will be appropriate, once the flip game ends?"


It'll never end, no matter what the Fed says.  They might conduct their flipping via the back door without ever making it public, but nobody on the planet, even the PDs actually wants the junk that Geither is issuing.  The ChairSatan is the buyer of first, last and only resort.

Anyone who thinks QE will end, or even can end, has rock in their head.  It simply cannot stop now.

nevadan's picture

I suspect it will end...badly.

Problem Is's picture

+11111... Correct analysis...

DUNTHAT's picture

Educate me.

How can they proceed with QE# when they have stopped POMO ?

Quintus's picture

Those Carribean Banking Centres and 'London Entities' are very handy if you want to make it look like there are genuine buyers in the market.  Of course Ben needn't specify in public just how these buyers are funded....


Off Balance Sheet Bitchez.

Drag Racer's picture

they call me the dollar... look out belowwwwwwwww

firstdivision's picture

Does this mean I can write on a piece of paper "IOU in 7 years" and sell that to the Fed?

tmosley's picture

Yes, we can all do that.

Those are as good as money, sir!


Quintus's picture

No.  Only Timmay can do that, and boy is he taking advantage of that fact.

DeadFred's picture

Wasn't this the seven year that almost failed?  Flip those hot potatos.  When is the next 30 yr, it will be interesting to see if anyone is interested in buying US debt long term.

NotApplicable's picture

Reminds me of chain-saw juggling.

While I can hope it doesn't end well for The Bernank, he'll likely fling them into the audience to save himself.

Henry Chinaski's picture

Flip that house = housing bubble.

Flip that bond = T bond bubble.

next up in the liquidity sequence...

Flip that cash? 


koot's picture

This has been going on for many a moon.  Should the Fed or their associates stop printing, can we expect failed auctions?  What more in the World is there for these parasites to suck from?

Internet Tough Guy's picture

At least Ponzi gave you ice cream. All I get from the Fed is a bill.

RobotTrader's picture

Right now, the scheme is working beautifully.

In fact, interest rates have once again plunged to world record lows again, with the 90-day T-Bill now yielding a measly 2 basis points!!!

TIME 3-Month 0.000 08/04/2011 0.02
-0.025 / -.025 11:36 6-Month 0.000 11/03/2011 0.08
-0.013 / -.013 11:24 12-Month 0.000 04/05/2012 0.16
-0.013 / -.013 11:34 2-Year 0.625 04/30/2013 100-01½
0-00 / -.000 11:15 3-Year 1.250 04/15/2014 100-24
0-00 / -.000 11:36 5-Year 2.000 04/30/2016 100-04+
0-00+ / -.003 11:37 7-Year 2.625 04/30/2018 99-26+
0-00+ / -.002 11:38 10-Year 3.625 02/15/2021 102-28
0-01 / -.004 11:37 30-Year 4.750 02/15/2041 106-00+
-0-03½ / .003 11:37

Ergo, utilility and dividend stocks are screaming today.  And bank stock investors are also ebullient as the "free money" era is once again back in play.

Just look how INTC has gone totally vertical off its lows, when it was yielding nearly 4% last month.

firstdivision's picture

The only reason for intrest rates falling is that people are looking at QE2 ending.  No word yet on the amount of QE3, but I would wager it will be about $450B

hedgeless_horseman's picture

Those are nominal rates. 

The real rates are all printed in red.

disabledvet's picture

"they always know something we don't."  oil embargo?

Bay of Pigs's picture

I find it disgusting to see some asshole on financial TV telling me the USD is "getting a lift" today because of OBL being killed (which is a bullshit story to begin with) and then looking at my USDX chart and seeing it DOWN. This country has become a total wasteland for any truth or accurate information being reported. Sad to see the USA become such a laughing stock of a country. 

Oh, and BTFD. Gold/XAU at 7.26. Miners are dirt cheap by measure you use.

Bubble? LMAO...

oogs66's picture

Just some quick math.  The 7 year was issued at 99.45    Its currently trading at 99.83.   Lets assume the street jacked up the price another 1/8 so they sold the bonds at 99.95.  They make 0.5% on $6 billion.  That's $30 million profit.  Not bad for a few days of balance sheet usage while acting as middleman in the giant game of the government selling bonds to itself.

redpill's picture

And the $6 billion isn't even theirs, they borrowed it from the Fed for nothing to begin with.  Whee!

nantucket's picture

it's the simplest scam i've ever seen, yet it is carried out in plain view of the public (the scamee) because not enough (to make a difference) fully understand it.  It's like hiding in plain sight...they aren't even TRYING to disguise it and IT WORKS!  i'm just pissed I haven't come up with a civillian equivalent to do the same to uncle sam.  ideas please.

vote_libertarian_party's picture

It is killing me that these guys come on TV saying that the Fed not buying starting 7/1 will have no effect on the bond prices.


Simple supply and demand.  Take away 83% of the buyers leads to decrease in price.  Adding $1.5T to supply with no increase in demand leads to lower prices.


It is only a matter of when the horses get spooked, not if.


I need to put the TV on mute again.  The urge to kick it is too high.

oogs66's picture

And Big Ben says it's all about the size of the balance sheet.  It's not.  It's all about the marginal buyer.  When that buyer is gone yields will go up or people will have to sell other assets to buy treasuries, or some combination.  But it's always about the new cash coming in or out, not about the size of the market.  Just another of his little white lies.

babylon15's picture

Bond prices might actually go up, because stocks and commodities will begin their 80% downward correction when QE2 ends.