Behold The Fed's Takeover Of The Bond Market

Tyler Durden's picture


The must see time lapse video below courtesy of Stone McCarthy shows the distribution across the entire curve of the US marketable debt, as it was held by either the Fed, or the private sector over the past three unconventional monetary policy programs: starting in 2003 and concluding yesterday. In one short minute, this clip demonstrates very vividly how the Fed effectively took over the US bond market.

Some things to note:

  • The reason why the Fed no longer holds any debt with a maturity under ~3 years is because of the "ZIRP through late-2014" language which means there is no point for the Fed to hold that debt. For all intents and purposes it is the equivalent of cash. Debt maturing between now and 2014 amounts to just under $5 trillion.  Which means the Fed only has about $5.5 trillion in marketable debt with a maturity over 3 years to work with, and already owns about a third of it. It also means that as all the Fed's holdings in the under 3 year category are sold, Twist will have to be extended, and with it the ZIRP language to beyond 3 years - most likely 5 or so.
  • What is very visible is how the Fed had no choice but to expand its SOMA limit holdings per CUSIP from 35% to 70%. Soon, once the Fed owns 70% of every longer-dated Cusip, it will have no choice but to again extend the maximum permitted holdings, this time to 100% as it gradually become the entire market.

If after watching this clip anyone still believes that the biggest bond market in the world resembles anything even close to fair and efficient or which would have clearing prices anywhere near to where they transact now, they may want to double down on the FaceBook IPO allocation now.

Initial marketable debt distribution by holders starting back in2003 when the first Fed monetary policy started:

And most recent.

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Thu, 08/16/2012 - 19:54 | 2712681 Dalago
Dalago's picture

Sooooo... you're fuck because the biggest hedge fund (the Fed) owns the USD.  That's what I got.

Thu, 08/16/2012 - 19:59 | 2712694 Future Tense
Future Tense's picture

Soon the market will overpower the fed in both the treasury and mortgage market. When that happens it's lights out for the real estate "recovery." Good look here at the trouble coming in the real estate market no one is talking about - demand.

Thu, 08/16/2012 - 20:14 | 2712726 notbot
notbot's picture

How do you overpower a printing press, Future Tense?

So ironic that Bernanke lectures Congress on fiscal sanity, then completely enables fiscal insanity by funding with Ctrl+P.

Thu, 08/16/2012 - 20:20 | 2712762 LMAOLORI
LMAOLORI's picture



Glad you pointed that out his lecture was a joke you would think they water boarded him and made him print.


So if we have to bail out the bond market's again how would that work?  Something along the line of Japan buying more of our debt?

Thu, 08/16/2012 - 20:34 | 2712795 I think I need ...
I think I need to buy a gun's picture

oh god


so what happens tomorrow if the program ended today? What replaces it and when?

Thu, 08/16/2012 - 20:50 | 2712833 sunaJ
sunaJ's picture

Congratulations, FED, you own the bond market!

Tell them what they've won, Jonny!

Well, Ron, as the money is conjured out of thin air to buy previously held debt, eventually the currency will not be accepted for trade anymore.  When that happens, just watch all of those dollars fall down upon the American people.  Congratulations, America!  Stay tuned for our next episode when America takes on China and the fiscal cliff in a real roshambo.  Good night!

Thu, 08/16/2012 - 21:09 | 2712877 economics9698
economics9698's picture

China caught on to the game.  It ends when one of the PIIGS breaks out or china goes gold.

Thu, 08/16/2012 - 21:34 | 2712930 nmewn
nmewn's picture

Dead on where's my debt binky, I need some unsustainable comfort.

Thu, 08/16/2012 - 23:12 | 2713148 The Monkey
The Monkey's picture

If the Fed had effectively taken over the bond market, 30 year treasury yields would not have moved from 330 basis points to 480 basis points during QE2. The Fed argues that real rates went down, but that's not exactly true - no one expected nominal yields to rise so far.

Let them do it again; this time expecting that long duration purchases will nail down the long end of the curve.

Bernanke - you do not control the rate curve. Raise nominal rates (even if real rates fall), and you will not only kill the US economy, secondary effects mean there will be hell to pay, and a lot less credibility for the Fed.

I have no vested interest. Go ahead and print.

Fri, 08/17/2012 - 07:20 | 2713561 Its_the_economy...
Its_the_economy_stupid's picture

Thanks for the Muni Bond link!

Sat, 08/18/2012 - 08:54 | 2716360 LMAOLORI
LMAOLORI's picture



Your welcome I hope people are paying attention RED ALERT: IT'S OPEN SEASON ON ALL CUSTOMER FUNDS

Thu, 08/16/2012 - 23:31 | 2713178 The Monkey
The Monkey's picture

Japan is much smarter than that. They will continue to sell long treasuries as required by the hyperinflation comittee.

Japan is shrewd - first to buy, first to sell.

Fri, 08/17/2012 - 07:10 | 2713544 youngman
youngman's picture

"How do you overpower a printing press, Future Tense?"

FAITH...when the fiat paper loses the faith.....that is how it is overcome....

Fri, 08/17/2012 - 04:37 | 2713451 MillionDollarBoner_
MillionDollarBoner_'s picture

"the market"

What's one of those then? I thought they were extinct...

Thu, 08/16/2012 - 22:06 | 2712998 Dingleberry
Dingleberry's picture

What this chart shows is that there is no such thing as a "bond vigilante" when it comes to the reserve currency of the world. 


Goldbugs are the new "vigilante".....

Thu, 08/16/2012 - 22:45 | 2713092 LongBalls
LongBalls's picture

True dat. With China net sellers of UST's and buyers of gold. You have just identified enemy number one. You just need to pull back the Iranian curtain to see it.

Thu, 08/16/2012 - 19:52 | 2712682 runlevel
runlevel's picture

holy shit

Thu, 08/16/2012 - 20:14 | 2712731 ACP
ACP's picture

Yeah, looks kinda like one of those simulations you see where a virus attacks the US in some fictional movie.

But this is not fiction.

Edit: This needs some dramatic music to emphasize when the Fed "infected" the market.

Thu, 08/16/2012 - 21:38 | 2712939 fuu
fuu's picture

Here you go, very rough.

Thu, 08/16/2012 - 22:03 | 2712988 donsluck
donsluck's picture


Thu, 08/16/2012 - 23:20 | 2713156 ACP
ACP's picture

Damn good rought draft! +1!

Thu, 08/16/2012 - 21:19 | 2712892 Cognitive Dissonance
Cognitive Dissonance's picture

Ben - "All your Treasuries are belong to us."

Thu, 08/16/2012 - 19:56 | 2712690 fonzannoon
fonzannoon's picture

No no no LIBOR bad THIS good!

Six minute Abs! Step into my office cause you're fuckin fired!

Thu, 08/16/2012 - 19:57 | 2712691 TheSilverJournal
TheSilverJournal's picture

The debt is unpayable and the only thing holding this boat together is ultra low rates. The US is much worse of than Europe.

Thu, 08/16/2012 - 19:58 | 2712696 Dalago
Dalago's picture

"the only thing holding this boat together is ultra low rates."  AND perception.

Thu, 08/16/2012 - 20:03 | 2712706 IrishSamurai
IrishSamurai's picture


"Animal spirits"  ... eventually to be replaced with "Animal Carcuses"

The SSN isn't buy 175K hollow points to ship to Grandma and Grandpa for self-defense purposes ...

Thu, 08/16/2012 - 20:30 | 2712785 BooMushroom
BooMushroom's picture

Six hundred rounds per special agent. And these are NOT for punching holes in paper targets.

Thu, 08/16/2012 - 23:03 | 2713101 LongBalls
LongBalls's picture

SSA to stop issuing paper checks too. So, even if you go to the office and get through to demand your money they can't do anything for you except offer a bite of the hot .40. At least it's hollow point so you might get a full sensation as it expands in your stomach?

Thu, 08/16/2012 - 19:59 | 2712695 NotApplicable
NotApplicable's picture

Once again, the mythical bond vigilante is proven extinct.

Thu, 08/16/2012 - 20:16 | 2712716 Dr. Engali
Dr. Engali's picture

The bond vigilante is working it's way up the debt chain. First Ireland, Greece, and Portugal. Followed by Spain , Italy , and France. Eventually they will make it here. Death by 1000 cuts.

Thu, 08/16/2012 - 21:33 | 2712928 NotApplicable
NotApplicable's picture

I don't consider insider predators to be vigalantees. They are all part and parcel of the system and are paramount in engineering its controlled collapse.

Thu, 08/16/2012 - 22:05 | 2712993 donsluck
donsluck's picture

Predators? Jealous are we? You too can participate, but you have to get into bed with a futures brokerage...

Thu, 08/16/2012 - 19:59 | 2712697 ThunderingTurd
ThunderingTurd's picture

That's nuts.  There in lies the reason long-term rates at significantly higher levels WILL NOT HAPPEN.  

Thu, 08/16/2012 - 21:47 | 2712959 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Once you enter, you never leave (the merry old land of ZIRP).

Kyle Bass' contention from a few years back (quite precient) if you ask me.

Thu, 08/16/2012 - 20:01 | 2712701 IrishSamurai
IrishSamurai's picture

In other news .... water is wet.

How this is shocking to anyone who reads Zerohedge the past 4+ years is beyond me?

The Bernank's entire thesis is on how he can use neo-keynesian logic to keep the economy afloat forever.

My only question to Ben (and the other satanists at the FED) is:

Does your HP printer come with a "PRINT FOOD", "PRINT ENERGY", and a "PRINT WEAPONS" button?

Because eventually the ponzi will be up and you and your friends won't be able to baffle the world with Bennie Bucks ...

Thu, 08/16/2012 - 20:03 | 2712710 ThunderingTurd
ThunderingTurd's picture

Not that it is "shocking" more fascinated with the illustration.  It's like when my 2 year old sees a train.  He has seen a train before, but each time he is blown away.

Thu, 08/16/2012 - 20:10 | 2712730 IrishSamurai
IrishSamurai's picture


Reading Zerohedge day in and day out (... and having a degree in Economics) ... its become pretty obvious that "All the world's a stage ... " ... so my cynicism meter is off the charts today.

Have known since 2007 when Paulson got his "bazooka" what the "plan" was.  Just didn't think they'd be able to keep the ponzi going this long and when many doomers here (and elsewhere) were saying that the bond market would eventually stop the game ... I'd just laugh and say "... That's not how The Merchant of Venice goes ... Shylock never gets his pound of flesh from Portia (the judge) .... aren't you guys read at all?"




Thu, 08/16/2012 - 20:18 | 2712759 ThunderingTurd
ThunderingTurd's picture

I am also amazed it has lasted this long; which leads me to believe it will go on longer than anyone can predict.  I am also astonished by the lack of interest in people that are in my generation (25-40).  It is going to be an epic 'dear in a headlight' face by the entire population.  

Thu, 08/16/2012 - 20:34 | 2712796 IrishSamurai
IrishSamurai's picture

Yeah.  38 here and 98% of our generational peers are clueless.

Most couldn't explain all the steps of how bread gets to the supermarket.


5 short years ago

Me: Explain the process of bread getting to the supermarket.

My Wife (37):  I go to the store and I buy it.

Me:  How did it get there?

My Wife (37):  Its just there.  I go to the store and I buy it.

Me:  So the Starship Enterprise just beamed a new loaf of bread from their ship to the store so that you could purchase it?

My Wife (37):  No stupid.  A farmer grows wheat and distributes it ...

Me:  How does the farmer distribute it?  The Starship Enterprise beams it for him?

My Wife (37):  You're just being an asshole ... you know he has to drive it to bread maker or have someone pick it up ...


After about 100+ of these conversations, my wife is now a libertarian who wants to get a farm and get off the grid ... she used to be a flaming environmentalist who was going to save the dolphins by ending oil subsidies ...

Just not sure we have enough time to get this out to enough of the retards ...

Maybe the Best Buy guy could make a video with those comic characters and get another 50+ million views to educate our nation on "How Stuff Really Works" ... not that neo-liberal bullshit website "How Stuff Works" (as sponsored by the State apparitik) ...


/Yes, I realize this post just got me on a list.  You're welcome.  Screw you and your drones.

Thu, 08/16/2012 - 21:20 | 2712898 dogbreath
dogbreath's picture

what do you call that routine,  fun with dick and jane??  sound like you are a patient man.  Environmentalist travel in packs so what happened to all her friends.

Thu, 08/16/2012 - 22:07 | 2713003 donsluck
donsluck's picture

All smart people travel in packs.

Fri, 08/17/2012 - 09:46 | 2713895 dogbreath
dogbreath's picture

clever but no.  

Thu, 08/16/2012 - 21:50 | 2712965 MiltonFriedmans...
MiltonFriedmansNightmare's picture

I'm 53, and you can say the same thing about my generation.

I would estimate that 99% of the population is clueless. If you don't read ZH, you're most likely in the dark.

Thu, 08/16/2012 - 22:38 | 2713073 CrashisOptimistic
CrashisOptimistic's picture

Guys, it does have an endpoint, and it is largely predictable.

Good, I have your attention.  


Item 1: Money was invented conceptually.  It doesn't exist in nature.  This matters because TPTB can control things that are nothing more than conceptual.

Item 2: Oil was not invented conceptually.  It has been there before mankind and some few drops of it will still be there after its scarcity kills off most of mankind.

THAT is the predictible endpoint.  Someone who needs oil to ship food to his cities is going to get outbid.  He's not going to get oil to feed his cities.  

He's not going to tolerate that.

He'll have a choice.  "Take" it from a neighbor who has it, or do the next best thing.  Kill off his neighbor who is burning oil and then there will be enough left that his next bid wins some.

Bottom Line: Money is conceptual and it won't be the cause of the end of anything.  Things conceptual can be redefined.  But food is not conceptual and it gets to the shelves via oil.  You'll know it's time to start walking to your survival point when you hear about oil wars fought NOT to secure supply, but to suppress consumption. 



Thu, 08/16/2012 - 23:48 | 2713208 Flakmeister
Flakmeister's picture

Old School, bitchez

Thu, 08/16/2012 - 21:24 | 2712906 ArkansasAngie
ArkansasAngie's picture

The fact is that TPTB will do everything in their power to remain in power.  Thus ... it will go on till they no longer have the ability to do anything more. 

And it will go out with a big bang.  It's under control until it isn't.

Gee whiz ... I am very tired of this.

Thu, 08/16/2012 - 21:53 | 2712972 MiltonFriedmans...
MiltonFriedmansNightmare's picture


There will be a black swan. When it appears, things get real in a hurry.

One morning when you awaken, the financial markets will be closed and the world in a state of panic. That's how I see it unfolding anyway.

Thu, 08/16/2012 - 21:13 | 2712879 EmmittFitzhume
EmmittFitzhume's picture

It will go on for as long as everyone is looking.  When there is another distraction, all the ruling class fucks, will quickly get out.  When the rest of the world turns back around it all be over.

Thu, 08/16/2012 - 21:15 | 2712887 fonzannoon
fonzannoon's picture

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