The Fed's Impersonation Of The Hunt Brothers Continues

Tyler Durden's picture

Submitted by Peter Tchir of TF Market Advisors,

What the Fed Owns

As we head towards NFP and discussion about tapering picks up again it is time for our Fed balance sheet report.  At least in terms of the treasuries they own as they continue their Hunt Brothers impersonation.

We ignore TIPS which add another $867 Billion, not because they aren’t important, but because I haven’t figured out an easy way to calculate the proper notional amounts or coupons with all the inflation adjustments.  The Fed has been buying those as well, so it doesn’t distort the percentages that much.

We include T-bills which are up to $1.7 trillion.  Ignoring T-bills takes the Fed’s ownership up from 18.8% to 22.4%.

The Fed now owns 48.6% of every bond maturing between 10 and 15 years.  That all important part of the curve now has a “free float” of $65 billion bonds.  Assuming some amount of that is tucked away in pension funds and not available for sale and the Fed could buy up all the remaining bonds in that sector with just one month’s worth of QE.

The 15 to 20 year part of the curve could be mopped up in less than 2 weeks of QE.

There are now 8 issues that the Fed owns 70% of which is the maximum that it is allowed to own.

There are 63 issues where the Fed owns at least 50% of the issue. There are 123 treasury bonds with maturities of 2018 or later.  The Fed owns more than 50% of 59 of those issues.

It really is only the new issues that have a low Fed holding and are truly free to trade.

Coupon Hogs

The Fed continues to take up the supply of any bond that pays a coupon.

The Fed’s bond portfolio has an average coupon of 3.4% leaving an average coupon of 1.9% for the rest of us (I ignore T-bills for these calculations).

The Fed has a long duration, high dollar price, high coupon portfolio.

Back at the end of September the Fed’s average price was 107.76.  That has decreased by 0.5%.  Some of that could be because they bought low price bonds, bringing the average down, but the rest will be pull to par effect and moves in rates.  Good thing the $10 billion isn’t marked to market.

While the Fed “only” owns 18.8% of the entire treasury market, they get 33.6% of all coupon paid.

So Treasury pays out all this interest ($207 billion annually) and gets back $70 billion less some costs associated with running the Fed.

So over the past two months, including mark to market, the Fed should have made about $4 billion.  If Yellen can figure out a way to get paid 2 and 20 on that, it could be a really nice gig.

What Does Any of This Mean?

It means that the Fed is still one of the biggest positive line items in the budget and the QE just enables D.C. to do less than it would otherwise.

It means that we continue to play in a market where one player dominates so much of the supply that D.C. would be howling with indignation about manipulation if it was happening in any other market.  Instead backs are getting sore from all the patting.

It means that the Fed is probably going to have to tone down purchases or move more aggressively to the front of the curve.

It means that I would be very nervous about being short treasuries here because  in addition to steep curves and low inflation, you have the potential for a short squeeze as the free float of longer bonds is just small. 

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VD's picture

& what happened to the Hunt Bros.?

Flakmeister's picture

Unlike the Hunts, the FED has home field advantage...

Gringo Viejo's picture

The Hunts played the game well and would have won the game had not the CFTC changed the rules in the middle of the game. They were fucked over....plain and simple.

nope-1004's picture

Didn't know there was a 3rd Hunt brother (Mike?).


ZerOhead's picture

Why are those crooks all queuing up to give the congressional clowns asking them stupid questions 'high 5's' ? ...

Peter Pan's picture

Let's face it. The Hunt Bros knew the value of silver but went about it the wrong way and left themselves open to being screwed. If you are anything other than a cash buyer you are playing with fire.

JR's picture

As Trampy put it a few days ago on ZH:

1.     Same as it ever was. “Kill the man, kill the problem,” Joe Stalin. Change is a process, not an event. Chicken Little has always been wrong, so why not now? The Hunt brothers truly believed in the 1970s that the only way to preserve their wealth against inflation was to buy silver. Today's stackers are no different. Only time will tell what the future will bring;

2.     Same as it ever was. Bankers v. The People is nothing new. In 1833 Andrew Jackson took on and succeeded in killing the Second Bank of the United States. In 1963 JFK took on the Fed and was killed. The bankers will do “whatever it takes” to keep it going as long as possible...

And who always is left standing no matter the crime: Goldman Sachs, i.e., the controller of the NY Fed Bank, the US and the EU. Does that not lend a hint as to the key perpetrators of this worldwide heist?

MaxMax's picture

Yep, I had a broker friend in Dallas years ago who explained it to me.  Variable margin call I think.  Basically, the US was concerned they would corner the market so they forced a margin call and didn't give them much time.  Bunker went to my high school and spoke at my graduation.  Not that I was impressed with his speech though.

Occident Mortal's picture

Thank goodness the Federal Reserve is transparent and has a crystal clear ownership structure.

Not like the Swiss Central Bank, which even has a goddamn stock market ticker.

For real...

Why buy Bitcoins when you can buy the Central Fucking Bank of Switzerland!!

Different levels of smoke and mirrors for different regions.

nevadan's picture

What? margin calls?

Canadian Dirtlump's picture

the same thing that will happen to anybody who tries to ( or who the fed thinks are trying to ) out hustle the gold star hustlers ( the fed themselves ). They will do anything including lie and change the rules to destroy them. In this case, they lie, continue their scam until they can't.

seek's picture

They were prosecuted by the very team that's doing this today.

Canadian Dirtlump's picture

I think the fed is doing more of an impersonation of the fable of what the hunt brothers did than what they did. Thankfully the fed is liked by the bad guys / mainstream powers / are the mainstream power so they can do whatever they want.


Either way Bunker Yellen's bowl cut is breathtaking. Bill Gross is even jealous.

ebworthen's picture

I just can't get over that "short hair makes you look younger" meme.

Who has long hair?  Young Women.

Who has short hair?  Old Ladies.

But...old Ladies have more disposable income, therefore hair dressers tell them that short hair makes them look younger so they come back more often to have their hair done.

It's like ZIRP and QE improve employment and keep inflation in check.


Flakmeister's picture

Once you have crossed the Event Horizon, all paths are fraught with peril...

LawsofPhysics's picture

Correct, and the "game" only continues as long as your paper promises are accepted.

ejmoosa's picture

How much longer will people trust that these paper promises are kept?

Because I know my circle of friends are all thinking the same thing.

The shit is going to hit the fan, we just do not know how soon.

Flakmeister's picture

The dollar is fine as long as it is convertable into oil...

Sit back and relax, start to worry when the House of Saud falls....

Canadian Dirtlump's picture

I rarely laugh out loud despite a good sense of humor. However, when viewing Williambanzai7's Financial universe diagram, the mouth of the black hole labelled "ponzi event horizon" get me every fucking time.


Trying to sift through the cornucopia heavily filtered bullshit resulting in a universal mirage is as fruitful as chasing down a fart with a butterfly net.

ebworthen's picture

I think this means I should buy Silver instead of TIPS.

buzzsaw99's picture

I took the other side of that trade.

ebworthen's picture

Hey, we just created a market!


q99x2's picture

Maybe BitCoin will surpass gold and not look back today.

Long live China.

Peter Pan's picture

America should feel proud that she owns so much of her own debt....but wait......does she own the FED?

DosZap's picture

America should feel proud that she owns so much of her own debt....but wait......does she own the FED?


That is what is SO funny, THE FED owns the debt, not us.All we have to do is print our own currency, and tell the cartel to FO.Start from scratch.


Sufiy's picture

US Dollar is Down Now And Gold Goes Vertical 

 Something interesting is happening with Gold today. After all the positive news about the economy Gold was not sold off, but was crawling up with much higher US Dollar. Now US Dollar is Down for the day and Gold is sharply Up in vertical reversal to $1245 from day's low of $1211.   Is somebody getting Short Squeezed already? Number of mainstream banks were calling for Gold going down to $1180, $1150 or $1000. Maybe somebody doesn't like to push his luck this time? We will monitor the situation and Interest Rates now.

Seal's picture

the Fed's 2 & 20 has been selling puts on the market and selling calls on gold, silver and miners

anefarious1's picture

I've been looking for this breakdown.  Great info.  Tyler can we get a RED ALERT when the Fed has 25% of all Treasuries minus any T-Bills! That is went we offically reach full retard and WW3 begins.

dcj98gst's picture

What I would do if president and had a captive congress:


1. Take the power away from the FED to print the nations currency.

2. At the same time re-nig on the debt owed to the FED making their holdings worthless.


What this means is that the shareholders at the FED (private entity) would be stuck with the bill, not the US gov.  These shareholders are most likely the big banks, rothchilds, etc..


3. Let the big banks fail, mandate a bi-metallic system of exchange (all transactions must be conducted with gold or silver or backed currency) with non regulated banking.

4. Get rid of FDIC.

5. Tell the world we are ready to re-enter the bond market.

withglee's picture

And how would you deal with the issue that there is only 1oz of gold per person on earth currently valued at less than $1300? And there is about 1/5th of that value in silver per person ... less than $300.

Remember, right now it takes almost an oz of gold to create a brand new oz of gold, so you can't just say an oz of gold is worth $1,000,000.

The correct solution (and the only real solution) is to institute a properly managed Medium of Exchange (MOE) where inflation of the MOE is "guaranteed" to be zero at all times everywhere; where money, which is "a promise to complete a trade" is in free supply to responsible traders; where supply and demand for money is guaranteed to always be in perfect balance.

To accomplish this is a trivial exercise. Once accomplished all this financial hocus pocus is history. Adios international bankers. Adios business cycle.

Todd Marshall
Plantersville, TX

auric1234's picture

And how would you deal with the issue that there is only 1oz of gold per person on earth currently valued at less than $1300?

Uh... maybe the price is too low?

Are you ready for the revaluation? If TPTB won't do it, market forces will.

Tick tock tick tock....

Flakmeister's picture

What planet are you refering to?

The ratio of gold to oil has been basically the same before and after the dollar was pegged to gold.  The value of the flow of oil overwhelms the world stock of monetary gold, it would take ~15 years for the gold to pile up in OPEC and Russian hands...

Unless of course you revalue gold at gunpoint or have a single world government....

max2205's picture

They have to...who else would buy 30 yrs below 4%...20 at 3%...if they weren't buying we'd be at 9 and 6 respectively....pomo will go to bonds more than stocks for about 2 moar years

HardlyZero's picture

10-yr at 2.85, and heading north.

Giving it up !

We may all have to deal with physical gravity as the economy goes down; however, the bond interest rates will have the anti-gravity and start floating up.


Boston's picture

Tchir makes sense. Not only am i not shorting Treasuries here, I'm buying the 10yr right now at 2.85% looking for yields to come back down closer to 2.5% in the short-term.

If we agree that the Fed has had success in pushing stock prices up, and that the Fed also wants Treasury yields to stay low, then it's now facing a problem---while equity prices remain high, Treasury yields have soared (100+bp) over the last year. 

So not only does the Fed need to get rates back down, ASAP, but if faced with a choice, I can't imagine that the Fed would sacrifice thre Treasury market in order to continue to prop up equities.

SpeakerFTD's picture

First thing I learned as trader.

It's easy to get into a big trade.   Getting out of it is the tricky part.


SKY85hawk's picture

Perhaps Ms Yellen will play the good School Marm and do an estimated Mark-to-Market on all the MBSs Bennie has bought.

I know, I know, MBS's can't be priced because the underlying mortgages are sliced up across many different bonds.

Sooooooooooooo, value all MBS that are paying less than promised dividends at zero and tell the originators to prove the current value. 

If they don't respond, charge the Fed's Buying price back to the seller.   This should be easy between the Treasury, IRS and the FED.

I'm hoping that FRAUD has not been de-regulated too!