Primary Dealers Violently Expel Just Auctioned Off Three Year Bond, As Fed Monetizes Over Half PD Holdings In Under Two Weeks

Tyler Durden's picture

Today's POMO closed with the Fed monetizing its usual fare of $6.69 billion in various 3 Year bonds, at a 5.81 Submitted-Accepted ratio. The surge in the S/A ratio is not surprising: a quick look at the internals shows just what the reason for the Primary Dealers' urgency was. Of the entire POMO, one CUSIP: the just auctioned off QH6 3 Year which was sold by the Treasury not even 2 weeks ago represented a whopping 81.1% of the operation. Observant readers will recall that this was the Cusip that was massively monetized ten days ago, when $5.3 billion of QH6 was purchased by the Fed. In other words, in under two weeks, the Primary Dealers have flipped over 50% of their original take down of the auction, or $19,890,840,000! In other words, had the Primary Dealers indicated their true interest in the bond, not accounting for expectations of an immediate flip back to the Fed, the auction would have been a failure. In this way, the Fed has now monetized 33.5% of the 3 Year that was sold to the unwitting public and foreign banks. Luckily, there is a 35% SOMA limit on Treasury holdings. Oh wait, that was scrapped as part of QE2.

Today's POMO summary: note the highlighted QH6 monetization.

And compare it to that from the last 3 Year POMO as of February 18: