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Year To Date POMO Summary And Fed Frontrunning Update: Here Are The Bonds To Buy And Flip To The Fed Tomorrow

Tyler Durden's picture




 

With 6 more POMOs coming up in the next three weeks, and an avalanche more if the Fed does in fact announce QE2 in 13 days, attached is a summary of all bond repurchase activity undertaken by Brian Sack's FRBNY team, and also provide Morgan Stanley's estimate of which CUSIPs are most likely to be on the Fed's most wanted list in the upcoming weeks and years. Attached is also a specific list of bonds that are most likely to be bought by Brian Sacks in tomorrow's 2013-2014 monetization.

Below is the summary of all 2009/2010 OMOs by maturity bucket in absolute and relative terms:

Not surprisingly, and as we have pointed out in the past, the Fed has a soft spot for monetizing the "belly" with the bulk of purchases in the 5-7 Year bucket. Very little historical monetization in the long end may explain why the 10-30s steepness is breaking records every day. We believe the Fed will soon be forced to move ever right on the curve, as SOMA and other liquidity limitations leave it with no choice. Of course, should the Fed announce a $1.5 trillion monetization, the resulting purchase of well over $2 trillion in USTs (especially if the Fed is forced to bid up as many of the questionable MBS securities it needs to to keep BofA and others solvent), it will have no choice but to i) remove the SOMA 35% limitation and ii) buy everything across the curve as it becomes available.

Next up, is a detailed look at specific issues which the Fed has bought so far as part of QE Lite:

Looking into the future, Morgan Stanley estimates the over the next 12 months the Fed will see $306 billion in MBS and $47 billion in Agency refis, which will open up at least $370 billion in additional UST purchase capacity in addition to anything QE2 announces. As we have noted before, we believe that should rates tumble, which will happen if the Fed is forced to bid up the 10 and 30 Year aggressively, this number will be much larger.

And for those looking at a hint what Bill Gross is buying currently (in addition to MBS which he is now seeking to put back to BofA, and soon Wells, JPM and Citi), here is a look at the cheapest bonds by bucket currently available, together with current SOMA fill levels. The bonds at the top of any given bucket are those most likely to be monetized:

Saving the best for last: tomorrow's POMO will focus on bonds between 2013-2014. Here are the bonds most likely to be bought:

  • 1.750% of 4/15/2013
  • 1.375% of 5/15/2013
  • 1.125% of 6/15/2013
  • 0.5% of 10/15/2013
  • 0.75% of 09/15/2013

Buy these today for a flip to the Fed tomorrow. Don't forget to apply a few million turns of leverage.

source: Morgan Stanley

 

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Thu, 10/21/2010 - 13:43 | 667424 HarryWanger
HarryWanger's picture

Thanks! This is exactly the info I was looking for last week all in one place.

Thu, 10/21/2010 - 13:50 | 667463 hedgeless_horseman
hedgeless_horseman's picture

Bullshit, HarryWangers.  You kids work at the FRBNY.  The POMO schedule is posted on the friggin' water cooler.

Thu, 10/21/2010 - 14:41 | 667705 Uncle Sugar
Uncle Sugar's picture

+1 

Thu, 10/21/2010 - 13:45 | 667435 the not so migh...
the not so mighty maximiza's picture

Oh POMO.. when I think of you I touch myself all over.

Thu, 10/21/2010 - 14:36 | 667689 treemagnet
treemagnet's picture

Very funny, I laughed out loud...

Thu, 10/21/2010 - 13:52 | 667472 TooBearish
TooBearish's picture

Hey Tyler- ZH goes mainsteam (sort of) Glenn Beck on AM radio this morning quoting a ZH post!

Thu, 10/21/2010 - 13:55 | 667486 Spalding_Smailes
Spalding_Smailes's picture
Fannie Mae, Freddie Mac bailouts could hit $363 billion, report says That figure, projected through 2013, represents a worst-case scenario that assumes a double-dip recession, the Federal Housing Finance Agency says. The finance giants have so far received about $148 billion in taxpayer funds.
Thu, 10/21/2010 - 14:04 | 667509 hedgeless_horseman
hedgeless_horseman's picture

Just as long as they stay off the USA's balance sheet.  We don't want our credit rating to be affected, or scare the shareholders. 

Ain't that right, Skilling?  Skilling?  Where is Skilling?

Thu, 10/21/2010 - 13:56 | 667492 Spirit Of Truth
Spirit Of Truth's picture

Actually, the stock market POMOs are likely one of the factors behind the perfect records of trading desks at hedge funds like Goldman Sachs as well.  What I'd like to see is the average percentage change in the SPX on POMO versus non-POMO days.

 

http://www.zerohedge.com/article/visualizing-pomo-market-how-fed-added-4...

Thu, 10/21/2010 - 14:45 | 667721 rocker
rocker's picture

Thank You Tyler. For the much needed data on POMO days. 

Thu, 10/21/2010 - 16:10 | 667992 Spirit Of Truth
Spirit Of Truth's picture

Thanks....I'm actually looking for the average percentage return of a POMO day versus a non-POMO day.  This article has numbers based upon sampling in recent months:

http://www.safehaven.com/article/18344/permanent-open-market-operations-pomo

Thu, 10/21/2010 - 16:24 | 668037 Bull Meat
Bull Meat's picture

You can find historical information about POMOs here:

http://www.newyorkfed.org/markets/pomo/display/index.cfm?fuseaction=showSearchForm

You have to massage the format a little to make it usable.  But it's all there.

Thu, 10/21/2010 - 16:24 | 668038 Bull Meat
Bull Meat's picture

You can find historical information about POMOs here:

http://www.newyorkfed.org/markets/pomo/display/index.cfm?fuseaction=showSearchForm

You have to massage the format a little to make it usable.  But it's all there.

Thu, 10/21/2010 - 16:25 | 668039 Bull Meat
Bull Meat's picture

You can find historical information about POMOs here:

http://www.newyorkfed.org/markets/pomo/display/index.cfm?fuseaction=showSearchForm

You have to massage the format a little to make it usable.  But it's all there.

Thu, 10/21/2010 - 16:19 | 668015 Bull Meat
Bull Meat's picture

This graph can be broken into four periods:

  1. Pre-crash of 4Q08 - POMO volumes were small, and their impact on the market appears mostly flat.
  2. Crash of 4Q08 - There was relatively little POMO volume while the crashed.  This period accounts for most of the diversion in the graph.
  3. 2Q09 "Recovery" - This does appear to bear the marks of a ramp job.  S&P returns on non-POMO days still tended to be negative.  Meanwhile, POMO volumes soared with S&P returns soaring with them.
  4. Since then - Even while POMO amounts stayed high on some days, it appears that POMO day returns have mostly moved sideways.  Meanwhile, returns on non-POMO days had been decidedly positive.

 Arguably, we may be entering another period.  As POMO amounts increase, returns on POMO days seem to be ramping while non-POMO days are moving sideways at best.  In any case, I write all of this to suggest that the graph appears skew due to a couple of period.  #2 occurred during the complete lack of POMO.  While there are certainly fundamental reasons why POMOs may lead to increased equity prices, I wonder if the case may be overblown.

Thu, 10/21/2010 - 14:02 | 667522 doolittlegeorge
doolittlegeorge's picture

So when will ZH "rate the dealer"?  Needless to say "Bill Gross already has and found them wanting."  As I've said before "Bill Gross is the Treasury Secretary."  Now we know "the center of the earth people are our Fed now."  Still "rates are at record lows though spreads are at record highs."  And of course "the Federal Government including the Fed is now suing the banks"(???!!!)  How much time before "they sue the states of New York, New Jersey, Illinois, Connecticut, Massachusetts...."

Thu, 10/21/2010 - 15:28 | 667874 metastar
metastar's picture

I'm just an average middle class slave who understands that the government is criminal, corrupt, and illegitimate.

 

Today I make my first foray into bonds under the leadership of general ZH.

 

Go 1.750% of 4/15/2013!

Thu, 10/21/2010 - 15:44 | 667924 centerline
centerline's picture

drive it like you stole it... pomo momo because their is no popo.

Thu, 10/21/2010 - 16:42 | 668096 vegaspilot03
vegaspilot03's picture

HEY IM NEW TO USTBonds too, i won't buy... not enough $, I'm looking at these UST's the minimum order is 1000? What does "non-callable" mean? doesn't that mean that I can't cash it in until maturity date? how does the FED actually buy MY bond? or am I stuck  in that position until it matures? (newb here)

Thu, 10/21/2010 - 16:12 | 667999 Bankster T Cubed
Bankster T Cubed's picture

printing the currency out the wazoo should do wonders for the yield curve....oh yeah...for a second there i was thinking that it was a bond "market".  but it's not!   it's just a big fucking fraud!  oh yaye oh yaye what a great institution we have in the fed - a company that prints money in order to give money to wall street banksters - to themselves!  isn't it wonderful?   and they really have done such a swell job managing a sustainable growth economy to full employment and price stability!   Can we finally shut them down please?  FOR GOOD?   PLEASE GOD, PLEASE!

Thu, 10/21/2010 - 16:29 | 668045 bull-market_3.0
bull-market_3.0's picture

How does one play this with futures? Should I just buy any bond future and assume it will rise in price tomorrow?

Tue, 10/26/2010 - 03:03 | 677049 guccichanel
guccichanel's picture

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Sat, 11/13/2010 - 07:56 | 724444 mark456
mark456's picture

Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
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