The Fed's Ten Year-Equivalent Holdings Hit A Record 29% Of The Entire Treasury Market

Tyler Durden's picture

With the Fed purchasing $45 billion in Treasury securities across the curve each month, keeping a consistent picture of Ben Bernanke's consolidated, risk-adjusted holdings can be somewhat problematic: the best way to do this is to represent the Fed's $3 trillion balance sheet, of which $1.7 trillion is in Treasurys, in the form of ten year equivalents. A ten-year equivalent is the amount of 10-year notes that must be held by the Fed in order to remove the same amount of interest rate risk from the market as its current holdings. This allows for a uniform representation that eliminates the duration variance along the curve. Looked in this light it may come as a surprise to some that as of this moment, the Fed now owns some 29% of the entire amount of marketable ten-year equivalents outstanding in the entire US bond market.

As the thin blue line in the chart from Stone McCarthy below shows, as of the current week the Fed holds a record 28.98% of all ten year equivalents, an amount that is double what it was some 2 years ago. At this pace of accumulation, Bernanke will likely own about 35% of the entire bond market in one year, and the only reason it is not much more is because as Bernanke is monetizing, the US Treasury keeps adding paper to the TSY market keeping the Fed's share of total holdings relatively constant.

And for the detail oriented, below is a Cusip by cusip representation of the entire Treasury Curve, showing that while Bernanke owns virtually no paper with a maturity under 3 years, which makes sense as that paper is the risk-equivalent of cash courtesy of ZIRP, the Fed's holdings of everything with a maturity of > 3 years literally explodes and for a variety of Cusips is at the statuory limit of 70%, beyond which liquidity in any given issue becomes massively impaired.

But fear not: by the time the Fed is done, the entire chart above will be covered in black.

Source: Stone McCarthy

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CPL's picture

That's a lot of IOU's.

Vegamma's picture

Wake me when they get to 50%

NotApplicable's picture

"I see a blue chart and I want to paint it black." -- Benron

nope-1004's picture









Bunga Bunga's picture

Not so fast. When they reach 100% the real fun begins.

machineh's picture

If you own 2% of the Treasury market and it crashes, the Treasury has a problem.

If you own 29% of the Treasury market and it crashes, you have a problem.

Me Ben ... me print ... therefore me exist!

slightlyskeptical's picture

Its not a problem if you are willing to buy everything that comes up for sale. That is the end game in my opinion. Own them and start over with a non debt based money system. The writing is on the wall.

JeffB's picture

It may not be a problem for the Treasury from the standpoint of having to pay much higher interest rates to attract enough investors idiots to buy up all of their IOUs, but all of that additional money is bound to cause some problems in the real economy, I would think.

I suppose the Fed feels it can sop up enough of it by paying interest to banks to hold it on reserve at the Fed rather than lending it out. I guess we'll eventually find out.


SafelyGraze's picture

a lot of us on the fomc are wondering about what happens after we own 100% of the treasury securities

obviously this situation is unlikely to arise when the debt ceiling is (finally!) released to allow the treasury to borrow without bound

but even then, there is a possibility (although very unlikely, due to the historic strength of the dollar as an international reserve currency) that there will not be enough bids for future issue

one idea that has been gaining a lot of traction lately is what we call a "mission swap" between the fed and the treasury

in this scenario, the fed would issue treasury securities and the treasury would issue federal reserve notes.

these would then be swapped between the institutions, so that the treasury holds treasury securities issued by the fed, then auctions them on the open market

the immediate advantage to this arrangement is that the fed could hold *more* than 100% of treasury securities (as measured by auction), having issued them to begin with, retained a portion of them, swapped another portion with the treasury, then purchased 100% of *those* from the treasury

out analysts have modeled this approach and found that it will help smooth future fluctuations in the bond market

Al Huxley's picture

This is a fantastic idea, however, I think you need to add a role for the primary dealers.  The extra layer of obfuscation will provide both cover for your activities and a great opportunity for your friends in the financial sector to squeeze more blood from the system.

SafelyGraze's picture

al -

we have been working out the details on that one

by holding the excess treasury securities (above the 100% of the auction market) in reserve, we can then lease these to the primary dealers.

the primary dealers can then sell these securities on the open market, including sales to the fed

Al Huxley's picture

Excellent.  I should have known that you were on top of it.

SafelyGraze's picture

we're the fomc, and we're here to help

Pure Evil's picture

Just make sure the Chinese are in a large portion of these trades so that US Citizinism can be slave to two masters.

SafelyGraze's picture

in a similar manner, the treasury can lease its excess holdings of federal reserve notes that it issued (i.e., the amount above its needs for paying the lawful amount for goods and services as required by congress)

it might, for example, lease its excess federal reserve notes to the primary dealers who could then use the notes as collateral to rent the use of treasury securities as the basis for their S&P longs

ShrNfr's picture

Well, after Ben owns 100%, I am sure he will find a method to own 110% and issue toilet paper against it.

machineh's picture

That's what Cayman-domiciled SPVs are FOR.

Free Jeffrey Skilling!

EscapingProgress's picture

Good thinkin'. That sounds like a bulletproof plan.

Stoploss's picture

Now we know where Bruno Iksill went to work at after JPM.

bnbdnb's picture

Buy high, Buy higher.

hedgeless_horseman's picture



Consequences shalomsequences. 

29% incest isn't so bad; it is just slightly worse than marrying your own...

grand parents,
double-cousins (children of 2 siblings x 2 other siblings),
identical twin cousins (children of identical twins).

They don't call him Uncle Bernanke for nothing!

knukles's picture

Hold the boat there, HH.

In Arkansas there is a state holiday on which you can legally marry your kin and double-cousins ain't considered kin anytime the year.

bdc63's picture

Arkansas - the state where your family tree doesn't 'branch' ...

machineh's picture

... 'don't branch' ... wasn't you taught no grammar, boy?

akak's picture

... DUDN'T ... y'all shur are dum!

Shee-it, my danged cousisterwife is callin' me agin!

fuu's picture

C'mon Stone, animate that thing already.

There is so much more room in the song...

NotApplicable's picture

Imagine black paint running down a wall.

Once they fill it in to the 70% line, I wonder, will they move the whole line down, set a different line for each issued maturity (like 90% of the 30 yr.), or perhaps move to the right, offering a 50 yr note?

One thing that's for sure, this event will occur if the regime is to last.

Getting Old Sucks's picture

So, when they end up owning 100% of the equity market, they just turn it over to the State and all becomes State owned corporations.  Isn't that the real plan? /sarc

OOPS!  Should had said the State takes it from the FED cause the FED would never diss their banks.

knukles's picture

Fabian Socialism at Work


(that is NOT a joke, fellas)

Poor Grogman's picture

Exactly just follow the thought experiment to it's conclusion.

The speed with which this is all happening shows clearly that they had this scenario gamed for many years before the GFC.

Either the FED ends or freedom ends, there is no other option that I can see.

ReptilianSlaveMaster's picture

managed to sell the rest of my gold today and go long the S&P500 at a cool 1500 a pop.. DOW 15,000 here I come - UP UP AND AWAAYYYYYY

Al Huxley's picture

15,000?  Have you no ambition?  This is the land of make-believe, where anything can come true as long as you wish for it hard enough!  Go for 150,000.

bdc63's picture

yeah, i hear ya bro.  i ordered an entire container load of 'CNBC DOW 15,000' hats from China ... sure hope they get here in time ...

Al Huxley's picture

29% - that seems like a lot, I'm just glad there are no negative consequences associated with it.

kaiserhoff's picture

Unintended consequences are for Earthlings..., oh wait.

bobthehorse's picture

It's downright scary.

All that juice for a 1.5 percent bump in GDP.

We're not getting much of a bang for our buck.

NotApplicable's picture

Well, it's only a bump when you look at it in one of those funny fed mirrors, while blowing smoke in your eyes.

The rest of the time? Plainly has all appearance of a depression.

In other news, I've no idea why you pimp that one blog entry so much.

Conman's picture

Hey why not go for 100%.  chant with me now.....USA USA USA,

Mark123's picture

Why don't they just go whole hog....print $100 trillion in fresh fiat digitial bucks, give it to their member banks and buy EVERY last asset, business, piece of land in the entire USA and then we can all live like kings (sort of slave kings). 


Now THAT would be a REAL man's balance sheet! Krugman would at least have to shut up then and there would be no need for stock markets, banks, or even governments.

Al Huxley's picture

Fuck yeah!  And ponies for everybody!

knukles's picture

Can I get a sheep about waist high instead?

machineh's picture

Please wait your turn behind Dr. Kurgman.

nope-1004's picture

. . . .  and home of the economically retarded.

Dr. Engali's picture

The retardeness of the nation isn't limited to just economics.

EscapingProgress's picture

I believe this is a relevant quote...

As democracy is perfected, the office represents, more and more closely, the inner soul of the people. We move toward a lofty ideal. On some great and glorious day the plain folks of the land will reach their heart’s desire at last, and the White House will be adorned by a downright moron. - H.L. Mencken

Timeless words.

Poor Grogman's picture

A long time in the future...

Sifting through the ashes of a lost civilization...

An advanced alien race discovered the one chart that made the disappearance of this curious race of humanoids, suddenly clear...

buzzsaw99's picture

The really scary part is that $85B doesn't even cover the entire budget deficit. Wait until they start buying it all. No interest for you!

Al Huxley's picture

I just can't believe they were such pussies up to 2009.  Fuck, we could have all been enjoying the good life a hell of a lot sooner if they hadn't been so chickenshit up to then.