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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James-Morrison's picture

Don't we get the new sheriff in 2014 when Bernanke steps down.  Then we can finally ditch this girly-man tinhorn.   

Sutton's picture

But only Flow counts now.

oak's picture

sorry. delete.

WhiteNight123129's picture

Short Treasuries Bitchez.

The Fed does give a shit about the PMs but it would hate to see the long bond yield rise agressively. Fuck them by shorting treasuries and making money by the same token. The market has more money than the Fed always.


Seasmoke's picture

Once you go black, you never go back.

Anonymouse's picture

Thank goodness the Fed will be able to sell these down in 15 minutes if inflation ever appears.

tempo's picture

Its brilliant. Could the FED QE/ZIRP been written and ready to implement waiting only for the 2008 financial crisis? The rich are winning big time.

laosuwan's picture

Every bond the fed "buys" is a bond that no one else wanted to buy. Is that not true? The money the fed uses to buy the bonds is simply created electronically. In that case it is the same as someone getting a credit limit increase on their visa card and using the credit balance to buy food, clothes, whatever. This will work forever as long as the bank continues to give you a higher credit limit. People assume that like with an individual this behavior cannot go on and there will be a default. However, this case is different. The credit card holder is the bank. This can go on forever as long as people are willing to accept the credit card. Dont look for the dollar to collapse anytime soon.

akak's picture

Was that supposed to be sarcasm, or are you Paul Krugman under an alias?


The (screaming) logical flaw in your "analysis" is quite simply that money, or debt, is not the same as wealth.  With each further descent into debt, and the corresponding monetization of that debt, more and more value is effectively stolen from all those holding, and being paid in, that currency.

Or do you believe in perpetual motion machines and Santa Claus, too?

laosuwan's picture

Not sarcasm, not krugman, not disagreeing with anything you said, just making the point that if debt monetization can kill the dollar it would have done it by now. Every country is trying to kill their currency. This can go on a long time.

No Euros please we're British's picture

Wait! What do you mean? There's actually no perpetual motion?

Poor Grogman's picture

You're barking up the wrong tree mate..

yogibear's picture

We know the Fed intends to be the only buyer of US treasuries.

Quite a sight when there is a currency crisis. 


slightlyskeptical's picture

The Fed holding all the debt is the same as the treasury just printing the money. Something I am actually in favor of. Adopt it worldwide and the nations that can continue to produce will keep strong currencies and those that can't will have weak currencies. Production should be the basis and backing of a nations currency. The goal for all countries should be full production with no one wanting for anything. We need a system that rewards hard work, ingenuity and innovation but not to the degree that it leaves everyone else with mere scraps. It is only will that stops this at our point of development.

Inflation is always the reason against a system like this. If at the same time we took away the banking system's ability to create money then we could easily escape much in the way of inflation. Limit banks to lending 70% of customer deposits and let them borrow the other 30% to lend  straight from the Central bank at a fixed, ever constant rate.  Full production would also be a force that would inhibit inflation and likely cause deflation, but remember it is not the $ value of goods but the quantity of goods produced that really matters under this proposed system. If the bankers needed jobs well they could use their skills to crunch the numbers as to how to allocate our resources in a full production world. 

In terms of governemnt spending I can see annual printing (budget) limited to about 5% of GDP.  Note that without an income tax and at full production we can easily double GDP.  This would leave gov. spending at about 18% of GDP.  We would no longer have debt and interest payments and the need to police the world would be greatly reduced savings us easily half of the current budget.  Leaves us at about 7-9% at current spending levels. At full production welfare would be very limited saving another 2-3% of the budget. Reform drug laws and you have another 1-2%. We can get where we need to under this type of system, without giving up anything we need from government.




jldpc's picture

You guys just don't get it. So long as the UST does not print more paper money/currency; how can this go wrong? It is just counter vailing entries on the books of two different federal entities. One is a lender and the other is a borrower - so they cancel out. So what. The sooner the FEd gets to 100% on a continuing basis the sooner we can forget the bad influences/threats/demands of foreigners. after all we owe it to ourselves; rather effciently; surely more efficiently than the stupid Japanese where individual citizens are purchasers/holders of all of those quadrillion bond debts. How stupid. Not us. We got the FED; and when its time we just close it down; send them home. Why pay them back; they just made up the "money" anyway? Actually they have never actually done anything like work, or production; so they have nothing to lose. So why the fuss? We shut down the FED, and voilathe debt is gone. And we can run a campaign that tells the $1T in student debt to do it for us. Tell them the truth, you young guys and gals have no hope whatsoever under the present system, so close it down. Think 16.5T and 1T gone in short order. What a relief. Instead of burning their grandparents (for real) at the stack for leaving them as debt slaves to the uber rich, they are set free to start their own 2nd Coming of the USA. As for the uber rich, they can deal with their CDS and pyriamid layers of cross collateralized, co-guaranteed, and they ought to be the ones responsible; they created that crap in the age old game of musical chairs. No chair; tough shit; your ass hits the floor. So I refuse to worry; I refuse to make threats against the powers tha tbe; I just believe that the massively unemployed young need to be told the truth; and the location of the ammo.