QE4EVA Expands Fed-Eligible Treasury Purchases To All Risky Paper

Tyler Durden's picture


Where under Twist there was a two year window in the Treasury curve that was the "no man's land" of Fed monetizations, as only bonds in the 6-30 year window were eligible for direct purchases, even as the "ZIRP through mid-2015" language kept 0-3 year maturity bonds risk free and thus cash equivalent, with QE4EVR we now have the Fed purchasing virtually all risky paper. Because if one assumes that the 6.5% unemployment rate will not be reached until mid-2015, and it won't, it means all bonds 0-3 years are still risk-free, but instead the Fed has moved the purchase border on the left to anything older than 4 years. In doing so, the Fed is now effectively in charge of the entire curve, but implicitly it means the 5 year spot, and the curve belly in general, will be of particular interest: look for 2s5s flatteners to be the best trading positions in the next few weeks as traders position accordingly.

The full breakdown of Fed purchases:

Form the NY Fed:

On December 12, 2012, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to purchase longer-term Treasury securities after the maturity extension program is completed at the end of December 2012, initially at a pace of about $45 billion per month.  The FOMC also directed the Desk to continue purchasing additional agency mortgage-backed securities (MBS) at a pace of about $40 billion per month.  These actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The FOMC also directed the Desk to maintain its existing policy of reinvesting principal payments from the Federal Reserve’s holdings of agency debt and agency MBS in agency MBS, and, in January, to resume rolling over maturing Treasury securities into new issues at auction.

Beginning in January, the purchases of longer-term Treasury securities will be distributed across 7 sectors based on the following approximate weights:

Nominal Coupon Securities by Maturity Range*
4 – 4¾ Years
4¾ – 5¾ Years
5¾ – 7 Years
7 – 10 Years
10 – 20 Years
20 – 30 Years
4 – 30 Years

*The on-the-run 7-year note will be considered part of the 5¾- to 7-year sector, and the on-the-run 10-year note will be considered part of the 7- to 10-year sector.
**TIPS weights are based on unadjusted par amounts.

Under this distribution, the Desk anticipates that the Treasury securities purchased will have an average duration of approximately 9 years, roughly the same as the net of the duration of the securities purchased and sold under the maturity extension program.  The distribution of Treasury securities purchased could change if market conditions warrant.

The Desk will continue to publish a tentative schedule of Treasury purchase operations for the following calendar month on or around the last business day of each month. The schedule will include the anticipated amount of purchases to be conducted, operation dates, settlement dates, security types (nominal coupons or TIPS) to be purchased, the maturity date range of eligible issues, and an expected range for the size of each operation. The next schedule of operations will be released on Monday, December 31.  The amount of additional agency MBS to be purchased each month will also be announced on or around the last business day of the prior month.

Consistent with current practices, the purchases of Treasury securities and agency MBS will be conducted with the Federal Reserve’s primary dealers through a competitive bidding process and results will be published on the Federal Reserve Bank of New York’s website. The Desk will continue to publish transaction prices for individual operations at the end of each monthly period.  All other purchase details remain the same at this time.

Frequently Asked Questions associated with these purchases, which include a technical adjustment to the process of reinvesting maturing Treasury securities into new issues at auction, will be released later today.

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Wed, 12/12/2012 - 14:06 | 3056526 Mr Lennon Hendrix
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Wed, 12/12/2012 - 14:10 | 3056541 CPL
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QE3 hasn't ended.  How can this be QE4?  Is it granting an extension on top of or part of the Q3infinity.

Wed, 12/12/2012 - 14:15 | 3056569 Mr Lennon Hendrix
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I figured while we were using meaningless numbers.  I mean, if we wanted to count it down, there was TARP, Stimulus, QE 1, QE 1.5, QE 2, QE 2.5, OT2, OT 2 Continued, QE3....and now whatever the fuck this is.

We should just call it QE 4 EVA from now on.  It has a ring to it.

Wed, 12/12/2012 - 14:31 | 3056630 fuu
fuu's picture

Can't we just call it what it is, subsidies for the biggest losers the universe has ever seen.

Wed, 12/12/2012 - 14:50 | 3056689 Kitler
Kitler's picture

Who? The American public?

No, this bailout is going to the owners of the U.S. of A.

Wed, 12/12/2012 - 14:32 | 3056631 trav777
trav777's picture

Cliff's notes:  the Fed will print whatever the credit base doesn't grow by naturally.

The good news is that with inflation only showing up in niche articles like gold, oil, and food, there's no worries whatsoever about unwanted side effects.

Wed, 12/12/2012 - 14:41 | 3056667 Mr Lennon Hendrix
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Are you drunk?

Wed, 12/12/2012 - 14:50 | 3056703 Bay of Pigs
Bay of Pigs's picture

No, he's just fucking stupid.

Welcome back Trav.

Wed, 12/12/2012 - 14:52 | 3056711 lunaticfringe
lunaticfringe's picture

No. He is sober. You don't want to see him when he is drunk.

Wed, 12/12/2012 - 15:50 | 3056954 ZeroAvatar
ZeroAvatar's picture

My guess?  It's NOT Trav.  It's an impersonater.  Trav was '7777'.  Even though this imposter offered an explanation for the different number, I don't buy it.  RobotTrader just took some time off.  There's nothing to see here. Move along.

Wed, 12/12/2012 - 16:38 | 3057160 Hippocratic Oaf
Hippocratic Oaf's picture

Yup. The real Trav would have dropped a couple racial slurs.

Wed, 12/12/2012 - 19:37 | 3057729 Matt
Matt's picture

This is the real Trav777. Check post history; Everything that was not on the archive server from January 5, 2010 onwards was purged from Zerohedge. The Tylers likely let him back on probation, so he's keeping his posts polite.

Wed, 12/12/2012 - 15:01 | 3056729 Banksters
Banksters's picture

Trav, you dumb.


Plot credit expansion against exponential growth.   mmmmmmk

Afterward, you can go back to trying to suck your cock.   

Wed, 12/12/2012 - 15:47 | 3056903 ZeroAvatar
ZeroAvatar's picture


Vote up!

Vote down!


Let's just go ahead and name the next (20?) QE's:



QE5-'til long after we're alive!

QE6-In control like a dominatrix

QE7-On long after I've went to heaven

QE8-Bankers, Bankers!  Who do we appreciate?

QE9-All my gold's looking fine

QE10???????????????????...............cmon, Ben!  Comment 2905319 10-19-12

Wed, 12/12/2012 - 14:23 | 3056603 Cursive
Cursive's picture


The semantics demonstrate how stupid this is.  BernanQE should take a page from the NFL and put roman numerals on it so that it seems more dramatic.

Wed, 12/12/2012 - 15:12 | 3056798 CPL
CPL's picture

I want all the news of QE anything to involve a jazzy interpretive dance.

Wed, 12/12/2012 - 14:46 | 3056684 whatsinaname
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OT but does the money borrowed by the govt from the SSTF figure in the federal deficit numbers  ? Are those numbers included in the 16 or 17 Trillion number ?

Wed, 12/12/2012 - 14:14 | 3056562 AllThatGlitters
AllThatGlitters's picture

Help a guy out here.


Gold and silver initially reacts higher, but nothing spectacular.

Live Spot Gold:  


Live Spot Silver: http://www.pmbull.com/silver-price/


So can we expect a reversal, before the real move higher? 



Wed, 12/12/2012 - 14:19 | 3056586 AllThatGlitters
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It started pulling back as I typed this.  Still time to convert fiat to physical I guess.  :-)

Wed, 12/12/2012 - 14:07 | 3056530 flacon
flacon's picture

How nice of them, to buy all the garbage so that we can live in our foreclosed homes for free! Gotta love America! "USA! USA! USA!" /SARC

Wed, 12/12/2012 - 14:51 | 3056710 AlaricBalth
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I have an IOU from a man named Otis Campbell from Mayberry, North Carolina. He has a good job as a glue dipper in a furniture factory. I wonder how much of a discount from par the Fed would be willing to give me on this less than investment grade paper? Maybe the Fed can do a better job at collecting than my loss mitigation specialists did.


Wed, 12/12/2012 - 14:09 | 3056536 Banksters
Banksters's picture



See you at the revolution.

Wed, 12/12/2012 - 14:09 | 3056537 q99x2
q99x2's picture

And this just out of the viper's mouth: Blankfein said that Goldman is advising all its corporate clients to borrow "as much as they're going to need for as long as they think they could need it" because of the low interest rate environment.


Wed, 12/12/2012 - 15:44 | 3056938 Captain Kink
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Individuals should do the same.  It's funny munny time, GET AS MUCH DEBT ON THE BOOKS AS YOU CAN. I am still waiting to hear how it is that they are able to prevent inflation from exploding Once it looks like rates are going higher.  that is the moment that will set off the forest fire of infation.  until then, why act?  why buy anything if rates/prices are going lower?



Wed, 12/12/2012 - 19:42 | 3057756 Matt
Matt's picture

Why would raising interest rates drive inflation? Would't it drive defaults instead, when no one can afford to refinance, since they maxed out at the lowest possible rates?

Wed, 12/12/2012 - 14:10 | 3056540 Cursive
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Financial repression, brought to you by Ben S. Bernanke and the Federal Reserve System, a group of privately owned banks.

Wed, 12/12/2012 - 14:15 | 3056542 mdtrader
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Wed, 12/12/2012 - 14:14 | 3056550 HD
HD's picture

Ever notice the media goes on and on about the fiscal cliff and never mentions we are printing 85 billion a month in part because no one will lend us money anymore.

China we miss you baby - come buy our worthless debt...we love you long time.

Wed, 12/12/2012 - 14:24 | 3056597 SheepDog-One
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2008- 'We have nothing to worry about, it's all good as long as China keeps lending to us!'

2012- 'Nevermind all that....we're lending to ourselves now....what, me worry?'

Wed, 12/12/2012 - 14:25 | 3056607 Cursive
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The Fed's language about maintaining low interest rates on the long end demonstrate what a farce the fiscal cliff melodrama is.  As long as we have the Fed, there is no fiscal cliff.  Cheaper currency maybe, but no fiscal cliff.

Wed, 12/12/2012 - 14:33 | 3056636 HD
HD's picture

I actually laughed at "6.5% employment"...

It's like saying you'll stop gorging yourself with food just as soon as you lose 30 pounds.

Wed, 12/12/2012 - 14:33 | 3056635 trav777
trav777's picture

At present, we don't need China to buy anything.  The Fed is doing it.  And everyone is shrugging.

We have proven we will go to war to protect the dollar's value at the margins.  Until someone threatens our ability to do this, the game plays on.

Wed, 12/12/2012 - 14:12 | 3056551 Cognitive Dissonance
Cognitive Dissonance's picture

This is about the only paper the Fed ain't buying........yet. Mrs Cog and I have stocked up in order to front run the Fed.


Wed, 12/12/2012 - 14:14 | 3056563 HD
HD's picture

Fed will never buy it...it's actually worth something.

Wed, 12/12/2012 - 14:35 | 3056642 Cognitive Dissonance
Cognitive Dissonance's picture

In that case we'll just leave our hoard for the kids to enjoy after we pass on.

<We consider Charmin as good as Gold.>

Wed, 12/12/2012 - 15:42 | 3056926 Mad Mohel
Mad Mohel's picture

Actually the dollar is better to mop up shit with. No dingleberries. That Charmin sucks, it falls apart before it even gets near an ass.

Wed, 12/12/2012 - 14:12 | 3056552 Northeaster
Northeaster's picture

"6.5% unemployment rate will not be reached until mid-2015, and it won't"

Depends on the metrics used by then. Everyone here understands the lengths that our government has gone, or agencies thereof, to change metrics or do away with some altogether. So maybe put an asterisk on that statement.

Wed, 12/12/2012 - 14:20 | 3056591 thecoloredsky
thecoloredsky's picture

Thats right. Even at 0% unemployment the Fed will still be QE'ing.

Wed, 12/12/2012 - 14:20 | 3056593 cxl9
cxl9's picture

Exactly. If they want to hit 6.5% unemployment, the numbers can be made to fit. Now, labor participation rate on the other hand ...

Wed, 12/12/2012 - 15:11 | 3056792 The_Dude
The_Dude's picture

Doesn't this create a perverse incentive for the banksters to drive unemployment higher as it approaches 6.5% to make sure that the heroin keeps coming.

Wed, 12/12/2012 - 14:13 | 3056561 Comay Mierda
Comay Mierda's picture

im going to start packaging and storing my own shit as fertilizer

with the currency collapse coming, it might actually come to have value

Wed, 12/12/2012 - 14:14 | 3056565 PaperBear
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CNBC hosts are using words like eternity and forever with a smile while I have my head in my hands.

ZIRP for eternity – CHECK – $40B MBS monthly for eternity – CHECK - $45B treasuries monthly for eternity – CHECK.

Gold or silver in your pocket – PRICELESS.

Wed, 12/12/2012 - 14:20 | 3056587 SheepDog-One
SheepDog-One's picture

H&K USP in your holster = PRICELESS!

Wed, 12/12/2012 - 14:34 | 3056643 trav777
trav777's picture

I need to grow an extra hand to give you three thumbs up for that one

Wed, 12/12/2012 - 15:06 | 3056764 JLee2027
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"Historic" ---> that was my favorite. As soon as drooling Steve Liesman said that, I had to control my laughter.

Wed, 12/12/2012 - 16:42 | 3057170 Hippocratic Oaf
Hippocratic Oaf's picture

Hard to interpret what Steve or Becky is saying. We know whos dick they suck.

Wed, 12/12/2012 - 14:40 | 3056663 foodstampbarry
foodstampbarry's picture

Keep obama in President. Know wat I'm sayin?

Wed, 12/12/2012 - 15:10 | 3056785 Antifederalist
Antifederalist's picture

Q: How do you know when the paper gold market is a fraud?

A: When the FED and all other major central banks announce QE Forever and the price of gold goes up 0.17%.



Wed, 12/12/2012 - 15:44 | 3056937 Mad Mohel
Mad Mohel's picture

Only thing he's got coming is a nice corner office at Squid Central.

Wed, 12/12/2012 - 16:07 | 3057019 cranky-old-geezer
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Like I said yesterday, banks are selling all the trash paper they can to the Fed, loading up their reserve accounts with printed dollars ahead of the USD - SDR currency exchange (when USD goes worthless).

Everybody else get rid of dollars, buy gold, silver, bullets, Jack Daniels, toilet paper, whatever.

It's just a matter of time now.

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