Frontrunning Today's POMO

Tyler Durden's picture

We were glad to see that for the first time someone besides Zero Hedge took offense at the Fed's now ceaseless monetization of just auctioned off, more often than not 'on the run' bonds, as an indication that not all is well in Sack Frost Kansasville. Bloomberg writes: "Fed spends 40% on newer, cheaper benchmark Treasuries" and clarifies: "More than 40 percent of the government bonds the Fed bought in January for its so-called quantitative easing were auctioned in the previous 90 days, up from 20 percent in December and 15 percent in November, according to Bank of America Merrill Lynch. The central bank is concentrating on newer securities as its $600 billion program depletes primary dealers’ holdings of Treasuries to the lowest since November 2009. “They’re getting all the bang for their buck that they can” by purchasing so-called on-the-run bonds, said Mitchell Stapley, the Grand Rapids, Michigan-based chief fixed-income officer for Fifth Third Asset Management, which oversees $22 billion. “When you’re the largest buyer out there, when you replace China in terms of the size of your holdings of Treasury securities, that will happen.”" It is great that more and more are starting to pay attention to what has been a ZH peeve ever since the beginning of QE2: namely relentless taxpayer rape. We do have one problem however: when Bloomberg says "cheaper" to qualify the "newer" Treasurys, it is, unfortunately, very much wrong. Take today's POMO for example. In 15 minutes the FRBNY will announce the completion of today's $7-9 billion monetization of bonds between 2017-2020. The most recently auctioned off CUSIP in the roster of 19 bonds is the 912828PC8 CUSIP also known as the 2.625%s of 11/15/20. This is the 10 Year bond acquired by PDs during the December auction (the January is structurally excluded as it matures in 2021). Now if Bloomberg is correct, not one single PC8 will be monetized today, since, as Morgan Stanley once again confirms, this is among the richest (as in, the opposite of cheapest) bonds to put to the US taxpayer, and the result of such a monetization would be yet another implicit impairment of Fed fiduciary interests. We will advise readers as soon as we know what the final outcome of today's POMO is as to how much PC8 was put back to Sack Frost.

All cheapest bonds during today's POMO: note the 2.625% of 11/15/20 is not even on the list...

So where is it? It is, in fact, one of the least cheap bonds available to the Fed.