Banks, The Fed and the "Taper"

bmoreland's picture

A lot has been made recently on the reduction in the monthly Fed purchases of Treasury Securities. The Fed purchases can be found on their web site at the Tentative Outright Treasury Operation Schedule.

Fed Treasury Securities Purchases by Month (in billions): 

December 2013 was the last month of $45 Billion in purchases. Starting in January 2014 the Fed purchased "only" $40 Billion and then reduced to $36 Billion in February. For May, the Fed anticipates purchasing just $24 Billion.

After peaking at 3.02% on December 31, 2013 the yield on the 10 Year Treasury Note went straight down in January and fluctuated between 2.60% and 2.80% until the recent break below 2.50%.

While a lot of factors go into the pricing of Treasuries it did surprise a number of observers that rates went down so quickly in January 2014 considering the Taper was just getting started. 

Interestingly, Banks (mostly the large ones) began ramping up their purchases of Treasury securities during the 1st Quarter of 2014. 

Bank Treasury Securities Purchases by Quarter (in billions): 

The $237 Billion is up from $193 Billion the prior quarter - a $44.58 Billion increase or an extra $14.86 Billion per month. Also note the $32.96 Billion jump from 2013 Q3 to Q4 - this was an extra $10.99 Billion per month. Collectively, banks have added an additional $77.54 Billion over two quarters.

The next table details that just 3 banks made up $40.36 Billion of the total $44.58 Billion 2014 Q1 increase.

Institution UST 2013 Q4 UST 2014 Q1 Increase Perc
Citigroup 68,952,266,000 82,746,996,000 13,794,730,000 20.01
Bank of America 6,189,000,000 26,894,000,000 20,705,000,000 334.55
Wells Fargo 474,000,000 6,334,000,000 5,860,000,000 1,236.29
  75,615,266,000 115,974,996,000 40,359,730,000 53.38


Citigroup added $13.79 Billion while Bank of America once again went all in and added $20.70 Billion. While Wells Fargo's $5.86 increase is not as large as the other two it is surprising in that WFC has never held more than $2.23 Billion in UST. Apparently, JPMorgan Chase did not get the memo as they actually decreased their Treasury holdings $1.67 Billion (22.42% reduction).

So, on one hand we have the Fed talking "Taper" in 2013 Q4 and beginning to actually taper in January 2014. Meanwhile, the banks start ramping up their purchases in 2013 Q4 to the tune of an extra $11 Billion per month and then going into overdrive during the actual taper taking their purchases up to an average of $15 Billion extra per month.

Combined Monthly Treasury Purchases (banks are an average monthly of the quarter gain):

Viewing the Fed and the Banks as one entity we see that very little actual tapering is going on:

Fed & Banks Net Combined Monthly Treasury Purchases (in Billions):

The question begs as to whether this is coincidence or rather a function of the largest banks coordinating with the Fed in net aggregate Treasury purchases. 

Shamelss Plug: This article along with a handful of others can be found at the recently released Articles section of Shortly, we will introduce a Contributors section where others have foolishly traded their valuable time for free access to the site.

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Saltaire's picture

As this economic nightmare unfolds I am in disbelief at the audacious monetary maneuvers being orchestrated by the FED, the US Treasury, The ECU, BOE, BOJ, and on and on.  I can only conclude that if this is truly necessary then they must have failed very badly. This can only mean the collected spending of Western governments has so far outpaced the ability of it's citizens to produce the wealth required to support them. Don't  they call writing IOU's to yourself, Insolvency?

Papa Oo Mao Mao's picture

TAPER??? The fed is just using the back door.

Belgium bought $141 billion worth of bonds over a three month period. A sum that comes to 29% of the Belgium GDP. They don’t have a surplus in their budget and that amount is 29% of their GDP. They don’t have trade or current account surplus in that amount. In fact, everything is in the red. They are not allowed to print currency as we are because they are tied to the Euro. If they didn’t have the money, and yet, they managed to pick up $141.2 billion in U.S. Treasuries over a three month period one would think the obvious, the Fed gave them the money thru back channels thereby hiding the fact that it is not tapering as Yellen claimed.  Belgium, if they had the money, certainly wouldn’t buy them as an “investment in the faith and good credit” of Amerika. China sold the second largest amount ever of US T-bills in December 2013. This was the second largest dump by China in history with the sole exception of December 2011 and who comes to the rescue???  That financial powerhouse Belgium....nothing to see here...move along.

toros's picture

And where did the banks find the money to buy more bonds with?  Isn't the whole point of this circle jerk to inject the banks with money?  Now this article says the banks are "helping" the FED offet the the taper with their billions in bank vault cash? 

kurt's picture

The financial structure of the USA is being detroyed from within while making sure the theft of her wealth is not destoyed in this orderly process of expropriation and concentration into "righter and better hands" (GHWB).

When was the last time you saw a recent movie that showed America as a "young" country, full of hope, rather than a post apocalyptic, declining, debauched, hell hole full of twisted freaks. This is the war to destroy the minds and hopes of the USA, to produce a nation with no expectations.

The export of the industrial might has already been completed.

The contradiction, illogic, and corruption of our military is in full progress and about 70%. The world hates us.


The job was and is beeing done to terminate us, to make us look stupid in the world. You, YOU have to do something to reverse the program. 


falak pema's picture

the FED is but the outer shell of the TBTF banking system, and revocation of Glass Steagall means they sink or swim together.

The US treasury who MANDATED the privately owned FED since 1913 to print the greenback is now hostage to the runaway petrodollar fiat, post BW/GS revokes and derivative/zirp boiler stoking all multiplied by compounding and fractional reserving. 

The US treasury is owned by the FED that Geithner and Paulson; Bernanke and GWB/Obama; have now brought to the Grand Canyon cliff.

And the world with it.

I Write Code's picture

This is bull tinkle, the movement of the Dow since January shows no evidence of such a taper so maybe it's a parallel and still undocumented separate flow of Fed printing to the public.

Puncher75's picture

An international version of "hide the salami".

Yancey Ward's picture

Add in the shrinking deficit at the federal level, and you have a full explanation.

Oreilly's picture

Thank you for the article.  I'd assumed that some such stunt was going on as the trumpeted end to QE was not being taken seriously by anyone, and now it's painfully obvious why. Tapering QE was only a sham for the masses, with a shell game replacement for liquidity still being used to flood the markets.  Likely the only ones to not know this are those continuing to move their 401k money into stocks.

Eventually TPTB will make an uncalulated mistake (or given the arrogance, a calulated but nonetheless wrong move) and the house of cards will fall.  These things always run true.

GOSPLAN HERO's picture

Belgium will save the USSA!

dontgoforit's picture

Staggering.  Sobering.  Ridiculous.