The Fed Is Now Taking Over The Entire Treasury Market 20 bps Per Week

Tyler Durden's picture

Yesterday the Fed released its latest balance sheet data: at $3,478,672,000,000, the Fed's assets reached a new all time high of course, up $8 billion from the prior week and up $615 billion from last year - after all with 4 years almost in a row of debt monetization or maturity transformation, either the total holdings or the 10 Year equivalency of Bernanke's hedge fund rise to new record highs week after week.

But that's not the bad news: the bad news, at least for Bernanke, and why the Fed has no choice but to taper is monetizations (however briefly as following the next market crash Bernanke or his replacement Larry "Mr. Burns" Summers will be right back in) is that since the Treasury is about to print less paper (recall: lower budget deficit, if only briefly), and the Fed is monetizing the same relative amount of paper, the Treasurys in the private circulation book get less and less, as more high quality collateral is withdrawn by the Fed.

This is precisely what the Treasury Borrowing Advisory Committee warned against in May. This is also precisely why the Fed's "data-dependent" taper announcement is pure and total hogwash: the Fed knows it can't delay the delay (pardon the pun) of Treasury monetization as doing so only risks even further bond market volatility as less Treasury collateral remains in marketable circulation, and as liquidity evaporates with every incremental dollar purchased by the Fed instead of by the private sector.

So just how bad is the situation? Quite bad. As as of last night, courtesy of SMRA, we know that the amount of ten-year equivalents held by the Fed increased to $1.608 trillion from $1.606 trillion in the prior week, which reduces the amount available to the private sector to $3.603 trillion from $3.636 trillion in the prior week. There were $5.211 trillion ten-year equivalents outstanding, down from $5.242 trillion in the prior week.

After the Treasury issuance, maturing securities, rising interest rates, and Fed operations during the week, the Fed owned about 30.86% of the total outstanding ten year equivalents. This is above the 30.63% from the prior week, and the percentage of ten-year equivalents available to the private sector decreased to 69.14% from 69.37% in the prior week.

In other words, in 1 week the Fed's "take over" of the bond market continued at a brisk pace of 23 bps, which is its average weekly uptake. This is roughly equivalent to 10% of total private collateral moving from private to Fed hands every year!

So basically every year that the Fed does not taper its purchases, Treasury issuance being equal (and it is declining), the Fed removes 10% of high quality collateral from the world's biggest bond market.

And that, in a nutshell, is what Tapering is all about: the realization, and then the fear, of what happens if and when the Fed continues its monetizations of public debt to the point where there is so little left, that when a trade takes place the entire curve moves by 1%, 2%, 5%, 10% or more....

Everything else is smoke and mirrors.

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So Close's picture

Suppresed vol accrues interest.

Stackers's picture

I see a $1+ trillion shovel ready stimulus in our future.

MisterMousePotato's picture

Please ... someone ... please answer one simple question:

If the Federal Reserve stops buying Treasuries, then who (else) will?

Actually, two simple questions:

When the U. S. Treasury can no longer sell Treasuries, how is it going to cover the checks going out next month?

Deep thinkers might ponder the social and political implications of the U. S. Federal Government instantly not paying one-third of its bills next month.

Deeper thinkers might ponder the consequences for the ensuing months and come to the conclusion that, in a year, the U. S. Federal Government will be in a positiion to pay - what? - ten percent of its bills. (And the social and political ramifications of that.)

Doesn't that put to rest any question about tapers being in our future?

Non Passaran's picture

> how is it going to cover the checks going out next month?

"Invite" citizens to buy UST's with their pension and other savings while de-stimulating (or taxing) other forms of saving or investing?
They can lend money to foreign "investors" so that they can use it to buy UST's.
They probably have few other ways that you and I can't think of. Don't think you're smarter than them.

MisterMousePotato's picture

"They can lend money to foreign "investors" so that they can use it to buy UST's."

But isn't that exactly what they're doing right now through the primary dealers?

You know ... I really wasn't being coy when I asked my questions. From reading here at ZeroHedge, for instance, my understanding is that the Federal Government has only a few tens of billions of dollars in their checking account (and even at one point only had about five?), and that if they had a single failed auction, well, yeah, sure, they could drain the Federal Pensions, which would buy them - what? - a few months? Six? A year even? But 85 billion dollars a month adds up pretty fuckin' fast, doesn't it?

Chuck Norris's picture

LOLOLOLOLOL!!  I get it!!

"the Fed removes 10% of high quality collateral"

High quality collateral being U.S. government paper.

Way too funny Tylers.





knukles's picture

And of course as the Fed continues to suck up all the paper (stock and flow) rates rise (psychology) because Ben & Co. can't communicate peeing right.  Same thing as real gold price suppression via the paper markets.
(ref, Jesse)

Sure, it's all fucking hunkie dorie.
The economies of the world are healed, the Martians are providing our global trade surplus buying all our gold, peace and harmony is breaking out all over, everybody's gonna hold hands and sing Kumbayah...
Not a damned thing has changed from 2 months ago.

Except a buncha bloody wankers mumbling some sorta new and improved scrotal gibberish.

Liquidity Trap, Credibility Trap, Japanese Model, FFS

James_Cole's picture

This is above the 30.63% from the prior week, and the percentage of ten-year equivalents available to the private sector decreased to 69.14% from 69.37% in the prior week.

Sorry if I'm behind the times, but what's this thing 'the private sector'? Is that a new venture by the fed?

SamAdams's picture

The FED is saying "no taper, get back in stocks!"  The test run rumor showed a recession will happen quite rapidly without continuous printing to buy bonds to keep rates low. 

When someone asks you how you know the FED is not part of your government, just explain it this way: 

1.  If our government could create its own money, it would not need the bond contract unless dealing with foreign entities.  It could just print money and give it to itself. 

2.  If our government created its own money, it would not charge itself interest on its own money.  If it did, it would have to print more money just to pay the interest.  This would cause inflation, a tax on the people.

Really, it's very, very simple, regardless of the obfuscation the FED promotes on its website.  Whereby the FED neither denies nor confirms succinctly that is a private corporation.

My Congressman recently told our county, "I'm not quite onboard with the FED being a private corporation".  I didn't get the chance to present these simple observations to him...

Bastiat's picture

 ". . . not quite onboard."  Priceless.

graspAU's picture

1) Question :“People have often questioned about the Federal Reserve being a private bank or a private corporation. Is that in fact true?
– Gary Franchi, Republic Magazine

Answer: “It is…each one of the 12 banks is a separate closely-held private corporation. We’re literally owned by the banks in our district.
– Jerry Nelson, Public Relations, Federal Reserve Bank of Chicago, May 14, 2008.

2) “Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. These twelve private credit monopolies (Federal Reserve Banks) were deceitfully and disloyally foisted upon this country by the bankers who came here from Europe and repaid us for our hospitality by undermining our American institutions...The people have a valid claim against the Federal Reserve Board and the Federal Reserve banks.” 
- Louis T McFadden, Congressional Record, 1932, pages 12595 and 12596  (R-PA, Chairman of the United States House Committee on Banking and Currency 1920-31)

3) “Some people think the Federal Reserve banks are United States government institutions. They are not government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders.”
- Louis T McFadden, Congressional Record, 1932, pages 12595 and 12596 (R-PA, Chairman of the United States House Committee on Banking and Currency 1920-31)

4) "...This is the strangest, most dangerous advantage ever placed in the hands of a special privilege class by any Government that ever existed. The system (speaking of the Federal Reserve) is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people's money. They know in advance when to create panics to their advantage, They also know when to stop panic. Inflation and deflation work equally well for them when they control finance"
-Rep. Charles A. Lindbergh

5) The 1982 Ninth Circuit court case of LEWIS v. UNITED STATES, 680 F.2d 1239 ruled that the Federal Reserve Bank is privately owned:

“Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Federal Reserve Banks are not federal instrumentalities for purpose of the FTCA, but are independent, privately owned and locally controlled corporations. Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region.”

prains's picture

Suppresed vol accrues interest.

Midasking's picture

Perfect! Let them have all the worthless paper then watch them go flush.  The world can survive without a central bank ponzi scheme.

ekm's picture

Whoever undestands a COLLATERAL BASED SYSTEM can easily conclude that there is only one player in the market: THE GOVERNMENT OF USA


This thing hangs up on a order from the White House which can come next minute, next day, next week - I don't know- but it will come


There is no drop, there is no cratering, there is only the bottom of the ocean left. Few primary dealers or insurance/pension funds are going down.

disabledvet's picture

"unpoppable bubble." this is purely political as well. the Fed...i don't even think Bernanke every really "knew" what he was doing when they went all in on QE. obviously it had never been tried before on such a scale...let alone at such a time (our economy hadn't collapsed yet.) in the world of "let's make a deal" however if "We the People" give Wall Street 750 billion then asking "what do We the People" get in return being "Quantitative Easing" i would say all in all "pretty phucking good deal!" i can't speak for the Street cuz i've never been...but i sure know DC...and they're gonna tell these ass-clowns to take a hike. this has saved the whole District from guaranteed...."bad stuff"! i mean we're talking politicians folks...they have meet and greets! anywho i've looked at this from a different point of view throughout...i'm glad to see you all are finally getting up to speed. again i am agnostic where interest rates go from here. but trust me "Washington DC never saw a revolutionary funding source they didn't love." if you throw in tax revenues which are surging at the Federal level...well, let's just say it's no wonder EVERYONE isn't going after the IRS right now. now...let's start talking the fun stuff. WARRRRR! (and no, it's not because i love that stuff...but it's all that get's that town moving.)

kw2012's picture

Except the next war may not be on foreign soil.

kchrisc's picture

So correct, as those of the US government, and their bankster masters, are already prosecuting a civil war against the American people. They are also preparing for when the American people catch on and rise up from their poverty and misery to try and take back their country.

Now you can write your masters in DC or you can prepare for what is here and coming.


The Four Rs

Rejection--No pay, no obey.

Revolution--They're preparing for it, you should be as well. See NDAA 2012/2013/2014, etc.

Retribution--We will know who and what these sociopaths are guilty of, and is there really any place for the likes of them in a restored Constitutional and civil society?!

Restoration--Restore the Constitutional republic.

scrappy's picture

The only good thing about this propping policy is that it has given us TIME TO PREPARE.

We have examined what happened, what is happening, and hopefully consensus will arrive when more people wake up.

Get ready friends.

Everybodys All American's picture

Few primary dealers or insurance/pension funds are going down.


Not sure I buy this statement...

ekm's picture

2 or 3 Lehman equivalents are going down


I do not see any other option

fonzannoon's picture

If rates go higher that is happening.

The only other option is for them to start monetizing other assets.

ekm's picture

not much "assets" left over

the gov owns almost anything

Dr. Engali's picture

There are a lot of "assets" they can monetize...stocks, reits, student loans, private placements...the list of what they can buy is long.

fonzannoon's picture

student loans rings a bell. Just a few strings attached.

NotApplicable's picture

They like strings. Gives them more leverage.

ekm's picture

1)Gov already owns them.

Obamacare literally nationalized student loans


2) Repo market would not accept student loans as collateral

That's where the action is that few are talking about:


WojtekSz's picture

gold would make an acceptable collateral when properly (=high) priced

game theory's picture

The monetization of "other assets" seems more plasusible each day. Taper treasuries and diversify the assets purchased until their targets are met.

Everybodys All American's picture

I misunderstood your statement. I agree.

Its Only Rock N Roll's picture

look at them defend 2.50% today on 10yr UST....amazing


ekm's picture

Due to interest rate swap derivatives hanging off off the yield

Its Only Rock N Roll's picture

yes sir

spot on

quarterly reset....the buying they did in last hour was impressive.  Enough to put it under 2.50% with plent of room to spare.  Watch for reversal of that on Monday

reload's picture

If BO is as much of a communist as many say, and he often looks, then he can pull the plug and the US quickly followed by the rest of the western world goes full soviet.

All your now worthless paper / 401K etc will be converted into `the patriot fund`

The income stream you relied on to service debt vanishes as the economy finally shudders to a halt and any `property` you thought you owned will quickly loose its equity. Then you loose it completely.

NotApplicable's picture

He's a puppet! To claim he is an idealist (of any flavor) is to imply that he hasn't sold his soul.

Which isn't to say that all your predictions won't come to pass, but rather, not for the reason you've stated. He will do them if and when he is told to do so.

TPTB learned their lesson with JFK, having to hide the evidence of their "fix" to this very day.

reload's picture


But they are not predictions, more an acknowledgement of the possibility.

The security apparatus of population control is in place after all.

CrashisOptimistic's picture

In general this is why there may be taper coming even if GDP is negative.

Some non economic reason may be out there and not talked of that compelled Bernanke to give a friggin taper timetable just 6 days before the 1.77% GDP number (that he assuredly already knew).

It may be the talk that "it will depend on data" is BS.  They may have this forced on them.

The alternate possibility, assuming they can do this legally and/or change the legality, is overpay for the securities.  If there are only 10 securities at 1000 dollars each but Ben wants to inject $20,000, he can pay $2000 to the PD who bought at auction for $1000.

The PD banks the profit and allegedly the money flows.

kentmills's picture

With insurance assets, we're all unsecured creditors, right?

pods's picture

Yep, and there is one sure fire way to make sure that the government ups the issuance of debt.


"I would like to solve the puzzle."


Cacete de Ouro's picture

I hope Bernanke has packed enough clean boxers shorts....or is it briefs?

not the most savory of images...

LawsofPhysics's picture

Boom motherfuckers, this just like playing monopoly as kids when one person ends up with all the property and all the cash.  The rest of went outside and did something else.  If the kid insisted we keep "playing" we usually kicked his ass.

fonzannoon's picture

The Bernanke Chronichles as written by Jack Handy.

I remember that one fateful day when Coach took me aside. I knew what was coming. "You don't have to tell me," I said. "I'm off the team, aren't I?" "Well," said Coach, "you never were really ON the team. You made that uniform you're wearing out of rags and towels, and your helmet is a toy space helmet. You show up at practice and then either steal the ball and make us chase you to get it back, or you try to tackle people at inappropriate times." It was all true what he was saying. And yet, I thought something is brewing inside the head of this Coach. He sees something in me, some kind of raw talent that he can mold. But that's when I felt the handcuffs go on.

Sweet Chicken's picture




This should all end well. 

kito's picture

GOLD BITCHEZ...........

Al Huxley's picture

See what happens?  I told you...

Bay of Pigs's picture

OMG...what have we created?

resurger's picture


no shit kitoooo lol