"Flip That Bond" Continues As Primary Dealers Divest 75% Of Just Auctioned Off 7 Year Bond

Tyler Durden's picture

Trust the Criminal Reserve and Criminary Dealers to take advantage of the cover provided by the Egyptian revolution to sneak a quick Flip That Bond in there. Today's POMO closed with $7.375 billion of bonds monetized out of $24 billion in submitted offers. The Submitted to Accepted ratio was 3.3x, but as usual the trickery lies just below the surface. As usual the just issued bond, the 2.625% of 2018, accounted for the bulk of the POMO. In fact, at $3.899 billion, the PT1 represented 52.9% of the entire POMO. With PDs having taken down $12.2 billion of the issue at auction, they have just reduced their holdings by 32%. But wait, there's more: on the February 3 POMO PDs put back $5.2 billion of the PT1 CUSIP. So between today and the last time the 7 Year bond (which was just auctioned off two weeks ago) was monetized, Primary Dealers have already given back 75% of the entire take down from the January 27 auction! So while Egypt has just turned a new page in its history, things in the US continue grinding just along the good old and very predictable "rape the middle class" status quo.

February 11:

February 3:

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jus_lite_reading's picture

THIS is where the next shoe drops. If only that other 52% could turn off the TV and learn to read!

Innocent Bystander's picture

yup, it got outa hand a fews weeks back, no holding back now...cant hold back.. stop gap will eventually end up bringing down that dam holding..

maybe this was the plan all along.. goodluck

jus_lite_reading's picture

HOLD THE PRESSES! I want to share this tidbit of delicious propaganda with you first-



Sophist Economicus's picture

Yup.   A little bit more upbeat than  "Good news, Consumer Sentiment move from Depressionary to Solid Recessionary levels -- Suicides, wife beatings and Dog kicking violence also down 3 percent"

gwar5's picture

They don't hold those things long

I thought they had to keep them a specified period 30-90 days.

Maybe that was just PIMCO.

MarketTruth's picture

Laws??? BWAAAAhahahahahah!!!!!!!!

"Give me control over a nations currency, and I care not who makes its laws" -- Baron M.A. Rothschild, same family empire that created today's central banking scheme.

SayTabserb's picture

We need to get to the point where the POMOs are held within an hour of the auction. Then simultaneously. Then without the PDs at all. THEN, possibily, this scandal will become newsworthy in the Lamestream.

SRV - ES339's picture

What happens if a million people (lots of unemployed out there) show up on Wall Street to demand all 2009, 2010 bank profits be returned to the people, and that those involved in the theft be prosecuted... hummmm?

jus_lite_reading's picture

Nothing. They have become too powerful.

Bananamerican's picture

"So while Egypt has just turned a new page in its history, things in the US continue grinding just along the good old and very predictable "rape the middle class" status quo."

it's getting wistful in here....

Clayton Bigsby's picture

Look at it this way - at least with all the worthless FRNs floating around, we'll never have to buy toilet paper again

Mad Max's picture

Think about all the other dirt and substances that are on those FRNs.  Do you really want that stuff touching your privates?

101 years and counting's picture

This is the only "income" the banks can generate at this point.  Their loss reserves have been reduced to zero.  Trading revenues blow chunks and we dont even have to mention their loan business (oh wait, i just did...).



Dixie Normous's picture

Absolutely, it's a backdoor bailout, but they come through the front door and stick it in the taxpayer's backdoor.

davepowers's picture

I'd love to see a fuller explanation of the 'money' flow mechanism at work here.

Unlike QE1, where the Fed could simply swap reserve enhancement for the MBSs that banks thereby got off their balance sheet. This alone prettied up the banks balance sheets allowing them an easier road to raising capital.

But with QE2, we no longer have just a closed loop asset swap. Somehow, somewhere in the new loop, money must flow to the Treasury to pay for government operations.

If the banks aren't using the reserves to lend, perhaps they are, in effect, using them to borrow. So, the banks, effectively using the piled up reserves as collateral, borrow from someone/something (perhaps just other banks), use the debt to buy new treasury paper, then, ala Tyler's continued analysis, immediately sell the paper to the FED who credits them with more 'excess reserves' and the process starts again.

The banks would have to pay interest on their borrowed money, but they can cover that with interest paid by the FED on the reserves AND the billions in profits/fees that Tyler has also shown they earn on all the QE2 transactions, leaving enough left over to pay their bonuses and paid the bottom line.

To the extent this is so (and it's just a theory), then increasingly the entirety of the functioning credit system is devoted just to fund US govt. operations.

LawsofPhysics's picture

Duh, even worse, the literate know that we could drop government spending to zero and taxes would still need to be raised to cover payments on the interest alone.

SayTabserb's picture

I wonder about the same things. But doesn't the Treasury get its money at the point of the original auction? The PDs pay in to buy Treasuries, I suppose using their reserve accounts at the Federal Reserve. The Fed then credits the Treasury with the payment by the PD, moving money from the PD reserve to the Treasury's checking account. Then the FED hallucinates new money to take the just-auctioned Treasury off the hands of the PD and re-credits the PD reserve account, plus the bribe money for playing along. This avoids a direct purchase by the FED of the Treasury at auction, which Hu doesn't like. This fools them completely, because it's so clever. Plus, each time the Fed is only hallucinating part of the last auction. The PDs use money previously hallucinated by the Fed to make the original purchase. I think we've discovered Perpetual Motion. The Chairsatan deserves some sort of Satanic Nobel for this invention.

davepowers's picture

I've also wondered if this is a perpetual motion machine, although check kiting is also an option.

There is some support for the money flow system you describe in the latest Fed balance sheet. For the latest week, there were three major cash flows from the FEd. 1. The FED repaid $25 billion to the Treasury under the SFP which is being wound down. 2. The FED effectively honored $55 billion in Treasury checks (to pay the cost of running govt presumably) which were drawn against the Treasury checking account at the FED and 3. The Fed bought a little more than $25 billion in Treasury notes/papers under QE 2.

The FED paid for these by borrowing the money from the banks in the form of a $100 billion plus increase in excess reserves held at the FED by said banks.


dudditz's picture

Bank roll Ben thinks he's got it figured.  The real joke will be on him because he won't even see what's coming along to take out his brilliant ponzi scheme.  The people of this country have huge hearts and souls, and it is a shame that most of them don't even know they are being sold out.

Zero Govt's picture

"things in the US continue grinding...  the good old and very predictable "rape the middle class" 

it works until the middle classes are wiped out, then they'll kick back against the 'status quo' that raped them

Parasites: Washington, Wall Street, The Fed (The Greatest Ponzi Scheme in history)

ehildret's picture

most people are too stupid to know who 'Raped' them

emsolý's picture

ehildret, you are an ironman!

LawsofPhysics's picture

Can't continue forever.  We are Russia, just prior to the collapse of the communist state.  Our communist state is much worse however.

Buck Johnson's picture

Your correct, thats exactly what we are.  And one morning or afternoon it will all fall down.

dudditz's picture

I think our problem is that we are pacified, like a baby with a rubber nipple.  We have welfare, social security, food stamps, disability, cheap food, gas, etc, etc.  Its going to take a lot of cold water to get the sheep out of its coma.

plocequ1's picture

Whatever. . NFLX, AMZN and Apple are all up. Im assuming the position. Kiss me. Like Sonny, I like to be kissed

Yen Cross's picture

 Those yield whores!

Wave-Tech's picture




Bonds Set to Rally

Akin to Hosni Mubarak’s 30-year regime of self-anointed dictatorship, the time has come for forecasters and analysts with aging guru status, who may have a gift for story-telling or providing intellectually stimulating arguments, to step aside.  The masses are not buying into your BS anymore, and they want the truth straight up.



MyKillK's picture

How much commission do the PDs make off this?

Flatchestynerdette's picture

I just got done eating at CPK. The twentysomething waiter told us that his mother has a nonprofit entity and she's teaching her son how to write grants. They were just awared a $1.2 million grant from a corporate entity - and when I asked him what it was for he told me it was for a "shared valued experience" to help children and that his/his mother's nonprofit company would get to keep 12% the first year and the second year the grant money would increase to $2.8 million and they'd get to keep, again 12% of that for 'admin' costs.

Now, can anyone explain to me what the hell is a "shared valued experience" and why would this company need a nonprofit company to help children? It seems like POMO/PD/Ben/FED/US TREASURY loop has infected the nonprofit area of the country so they with the same results: nothing tanglble that's good and will get us out of the problems we are in.

Am I the only capitalistic company left who is building widgets, fending off china lower wages, japanese robotics, etc. to MAKE SOMETHING TANGIBLE? or is tangible out, i just haven't received notice, except for these little snippets of news about PD's divest 75% of just auctioned off 7 year bonds - back to the treasury(?) meaning it flowed into their accounting channels, had a "shared valued experience" and then flowed right back out to be put on the slag heap of waiting treasuries to be paid that have been printed and should be worth something tangible but are not?

Am I that freaking old that I expect reality to be real? Or is it ALL VIRTUAL NOW....even POMO, PDs, the Fed, and Treasuries.