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