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Under Twist, The Fed Has Purchased 91% Of All Gross Issuance In Long-Dated US Treasurys

Tyler Durden's picture


One of the salient questions asked of Bernanke by Congress relates to a Kevin Warsh oped in the WSJ, in which he said the following: "Private investors are crowded out of the market when the Fed shows up as a large and powerful bidder. As a result, the administration and Congress make tax and spending decisions—with huge implications for our standard of living—with heightened risks around future funding costs." This is arguably the question that dominates Fed policy making under the Operation Twist doctrine, in which the Fed buys up long-dated paper and sells Short dated (under 3 years), the second leg of which however is completely irrelevant, as the Fed has already guaranteed ZIRP until 2014, in essence confirming that Twist was nothing but a stealth QE3 as we have claimed all along, as the Fed's ZIRP4EVA policy effectively offsets any and all short-dated sales. Needless to say Bernanke's response was irrelevant. However, here is the most jarring statistic. As Barclays showed a few days back, under Twist, the Fed has monetized virtually all, and specifically 91% of all gross issuance in the 20-30 year maturity bucket. In other words, Warsh is absolutely spot on, and once again we are left with an artificial market in which it is only the Fed that defines the UST curve shape by molding the long end. What happens when Twist ends? Will the 30 Year collapse? What happens when there is no explicit back stop to the long end? Is this the reason why Bill Gross yesterday said that he fully expects much more check writing by the Fed for the next '12, 24, 36 months." And how can it not: we don't have a market of rational players any more - the entire market is merely one irrational player, whose biggest counterparty incidentally, the ECB, is beyond broke. Finally, what happens to the Fed's balance sheet when interest rates start rising? Holding a portfolio with a duration greater than it has ever been, the DV01 is currently well over $2 billion (i.e. a $2 billion loss on every basis point increase in rates). And rising.

h/t John Lohman


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Thu, 02/02/2012 - 13:26 | 2120460 swissaustrian
swissaustrian's picture

Nationalized yield curve, bitchez!

Thu, 02/02/2012 - 13:31 | 2120486 GeneMarchbanks
GeneMarchbanks's picture

It's getting suffocating out there.

Thu, 02/02/2012 - 13:37 | 2120503 SteveNYC
SteveNYC's picture

"Finally, what happens to the Fed's balance sheet when interest rates start rising?"

The (unintended?) consequences of Bernanke's actions over the past few years will ensure that the Fed can NEVER leave the market, so long as it exists. It is all-in, and can not possibly be extracted in any way, shape or form without causing some unforseen string of catastrophes.

By getting as involved as he did, Bernanke has assured us that at some point the whole thing must come down. But, all things must end and this system is no different. What is worrisome is knowing this, yet being unsure of the timing.

Thu, 02/02/2012 - 13:42 | 2120519 Matt
Matt's picture

It's a good thing the Fed is immune to accounting rules and can never be insolvent.

Thu, 02/02/2012 - 13:45 | 2120531 economics1996
economics1996's picture

The Fed will be insolvent when the OWS protesters get half a brain and move 4 blocks north to the NY Fed.  Hang em high, five at a time.

Thu, 02/02/2012 - 13:54 | 2120569 Bob Sacamano
Bob Sacamano's picture

OWS has fond affection for government  - the more, the better.  So they are a little reluctant to go directly after their Savior and Provider upon whom nearly all should depend  - the US Federal Government. 

Thu, 02/02/2012 - 13:55 | 2120579 Manthong
Manthong's picture

I think the big question is what percentage of the S&P has the Fed pruchased.

Thu, 02/02/2012 - 14:45 | 2120746 ratso
ratso's picture

The purchase of long dated paper prevents investors from suffering significant losses

Thu, 02/02/2012 - 15:18 | 2120881 hedgeless_horseman
hedgeless_horseman's picture



If 91% an A- then why are we still AA+ by S&P?  Are they grading on a curve?

Thu, 02/02/2012 - 15:34 | 2120930 lasvegaspersona
lasvegaspersona's picture

The fed now has a sacred duty to buy whatever it takes to keep short term interest rates low. They promised they would. If buying all that stuff that it takes to keep rates low also happens to fund the government, well that is a happy coincidence isn't it. Everybody wins....oops... except savers...oh and any sense of reality left in the markets...oh and any one who dares bet on what 'should' happen in a real capitalist just about everybody wins....just behave and play along...

Thu, 02/02/2012 - 14:29 | 2120702 financial apoca...
financial apocalyptic contagion's picture

+1 bob and thats why OWS will fail too much trust in socialism

Thu, 02/02/2012 - 19:03 | 2121529 blunderdog
blunderdog's picture

Well, at least the TEA Party's in Congress now, there's your revolution right there.


Thu, 02/02/2012 - 13:44 | 2120530 economics1996
economics1996's picture

The Fed and the US Federal Governemnt is all in.  The Federal governemnt will explode when this inflation we are suffering;

1.  Becomes official.

2.  Forces interest rates to rise.

Game over.  Remember 1991 and the USSR?  Washington DC 2018.


Thu, 02/02/2012 - 16:53 | 2121218 seek
seek's picture

Yep, but it could happen as early at 2015.

I'm seriously considering starting a personal lobbying effort at my state legislature to prime them to shut down any nazi power grab when the time comes, I'd much rather have crooks within driving distance taking over.

Thu, 02/02/2012 - 13:50 | 2120552 kito
kito's picture

@stevenyc--preparation my friend, preparation..........

Thu, 02/02/2012 - 21:27 | 2121920 Buck Johnson
Buck Johnson's picture

Your correct, when will it happen and how badly.  They can't get out because of the fear of rising rates and failed auctions.  They can't stay in because it warps the curve and distorts the market, what can they do.  They either pull the plug themselves or allow some unforseen action (black swan) do it for them.

Wed, 09/19/2012 - 20:11 | 2813399 LongBalls
LongBalls's picture

"Finally, what happens to the Fed's balance sheet when interest rates start rising?". Not that anyone who is a member of fight club needs to be reminded; what this means is that our government has absolutley lost the little control over this countries economy is use to have. When the Private Fed presides over the economic nuke button, nothing any politician or judge or general or citizen has ANY control to get us out of this mess pain free. It's time people wake up to the reality. If we are meant to be a free society, the people will need to take control of the issuance of it's money the hard way.

Thu, 02/02/2012 - 13:41 | 2120517 economics1996
economics1996's picture

End the Fed.  Fucking bullshit.

Thu, 02/02/2012 - 13:51 | 2120557 blindfaith
blindfaith's picture



If and when (don't hold your breath) Ron Paul ( or someone who subcribes to his end the fed) gets in an office of importance, the system will be so dependend on the Fed that to end it means EVERYONE including thoses holding PM will be in a state of civil and societial collapse.  This monster knows what he has done, and is doing, and every politian in the USA and around the world knows this....and they ARE NOT stopping him.  Even China has no intention of stopping the play in the middle of act 1..... they just like to cough out loud when Ben and Timmy are on stage.

Thu, 02/02/2012 - 14:00 | 2120599 astoriajoe
astoriajoe's picture

The road to Roota?

Thu, 02/02/2012 - 15:18 | 2120617 Manthong
Manthong's picture

The only way out is out..

When enough people recognize that everything they posess that is attached to a counter-party, from real estate to cars, to stocks, bonds, savings, checking etc. is a government and bank siphon of their very life and liberty and then delever and liquidate to a sufficient degree.. it's the only way to break government/banking death grip on society and freedom.

Thu, 02/02/2012 - 21:10 | 2121890 Likstane
Likstane's picture

Hell yeah man-panty.  Quit supporting the 'money' lenders.  Don't borrow a dime.  Put all your excess into metal or tangible assets.  The usury kings can't keep playing if there is no usury.  The inflation game can be played as long as people keep using the play money.  If you borrow 'money' with vig attached, then you have no where to complain except to yourself.  When the taxes become unbearable, the people will stop paying and hopefully string up the government/banker piss-bags.

Thu, 02/02/2012 - 15:11 | 2120858 pods
pods's picture

Some of us see the evil in this system and would like to bring it down in time for our progeny to actually experience what freedom is.


Thu, 02/02/2012 - 14:59 | 2120808 Zero Govt
Zero Govt's picture

Hard to suffocate a Zombie Economy, it's not actually breathing (see Japan) just needs fresh blood, from the productive economy.. it's called taxation

When the productive are bled dry Blowjob Bens days are over's always about the good people, never about the suckers like Bernanke, Bumma and Timma

Thu, 02/02/2012 - 13:39 | 2120508 I Got Worms
I Got Worms's picture

What could possibly go wrong?

Thu, 02/02/2012 - 15:45 | 2120962 midtowng
midtowng's picture

None dare call it ponzi

Thu, 02/02/2012 - 13:29 | 2120461 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

This is the last resort, which would mean we are at the end of the....resort.  Luckily the Tresurie will sell debt and the buyers will pay to own it.  Brilliant.  What's next?  Will they sell me a unicorn?

Thu, 02/02/2012 - 13:48 | 2120542 Falcon15
Falcon15's picture

Yep. A unicorn named Hope. The upside is IT SHITS SKITTLES!

Thu, 02/02/2012 - 13:27 | 2120462 Newsboy
Newsboy's picture

The assumption at the top appears to be that the monetary regime will end before the debts become payable.

Borrowing from a future, where your creditors will not be paid, is good, as long as it can last.

Thu, 02/02/2012 - 13:48 | 2120543 Matt
Matt's picture

If the Fed is able to acquire all of the outstanding debt of the US treasury, then they can default and no one loses. It's a brilliant plan, really.

Or rather, they won't need to default since 100 percent of the revenue from the interest payments will get turned into the Treasury. A perfect closed-loop system.

Thu, 02/02/2012 - 13:55 | 2120575 blindfaith
blindfaith's picture


The payment will be the blood of your childern, one drop at a time.

Thu, 02/02/2012 - 14:09 | 2120628 Vincent Vega
Vincent Vega's picture

Matt, where does the Fed get the money to purchase all of the debt in this perfect closed-loop system?

Fri, 02/03/2012 - 09:06 | 2122578 Matt
Matt's picture

The comment was really meant sarcastically. It's more of an intellectual concept, like a perpetual motion machine; in theory, its possible, but most people realize it cannot actually work.

Thu, 02/02/2012 - 20:23 | 2121761 mkkby
mkkby's picture

I've been saying this for a while.  I don't understand why ZH still frets about what happens when the fed sells their portfolio.  They never will.  What difference does it make if you have losses, when you can just print yourself more?  They'll just keep the ponzi financing of the US going for as long as it lasts.

It won't end until there's an inflation event.  Right now that's not happening because deleveraging is happening as fast as printing.  When the deleveraging winds down, we are toast.  Even the massive US deficit can double and re-double, so long as the fed can keep rates at 0.

Thu, 02/02/2012 - 23:44 | 2122128 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Deleveraging is just beginning. Trillions and trillions of dollars/euros/various fiat to pay back won't be. It will be highly deflationary in the short term as defaults add up quickly. Implosion bitchez!!

Thu, 02/02/2012 - 14:18 | 2120666 s2man
s2man's picture

Nationalize the Fed.  Burn the debt.  Problem solved. 

Thu, 02/02/2012 - 13:28 | 2120470 fightthepower
fightthepower's picture


Thu, 02/02/2012 - 13:29 | 2120473 TruthInSunshine
TruthInSunshine's picture

That's gotta be just an epic balance sheet the Fed has, even viewed in the context of the worst of the Banana Republic terms, given record low long maturity tnotes, MBS, toxic REIT sludge of every denomination, and everything else in Maiden Lanes I through XXXXVIII.

Thu, 02/02/2012 - 13:31 | 2120485 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

"Trillions of MBS" said Bernanke.

Trillions and trillions of liabilities, but it is balanced, and "if we need to we can sell assets".  What are those assets? 

Bernanke just said he would "sell", or rather lease, gold.  He just said it.

Thu, 02/02/2012 - 13:47 | 2120534 TruthInSunshine
TruthInSunshine's picture

I sure hope U.S. taxpayers (i.e. debt serfs) don't have to somehow make good on the Fed's balance sheet obligations in case they aren't able to...and all...


<really, really naive shrug>


Oh well, the Superbowl is on this Sunday. So at least we have that.

Thu, 02/02/2012 - 14:00 | 2120598 blindfaith
blindfaith's picture



Here is the fiat currency can survive without the full faith of the users.

In the end we will do something like Brazil or we will all be eating eachother....and I don't mean in a loving way.

Thu, 02/02/2012 - 13:47 | 2120539 prains
prains's picture

I think what he meant was he would sell a kardaschian or two if he totally like had to

Fri, 02/03/2012 - 02:44 | 2122352 Nage42
Nage42's picture

_Tradeable_ assets.

All those people they will be interning into FEMA concentration camps can be harvested.

The indians and chinese have gold...
FEMA has kidneys, livers, and hearts...

buyer, mee[a?]t seller!

I can see the slogan now: "We've got the "heart" to buy your gold!!"

Thu, 02/02/2012 - 13:55 | 2120578 francis_sawyer
francis_sawyer's picture

even viewed in the context of the worst of the Banana Republic terms

& yes we have no bananas!

Thu, 02/02/2012 - 13:29 | 2120475 Jlmadyson
Jlmadyson's picture

Last resort is a hell of a drug.

Pass it to the left Ben.

Puff, puff, ponzi.

Thu, 02/02/2012 - 13:40 | 2120509 Whiner
Whiner's picture

Twist it' Bennie. Twist and shout. When the external market starts moving up those short term notes you will wish you had sold those suckers the long bond. Where you gonna get the money? Go back to your tenured chair at Princeton. Nobody in the faculty lounge will eat with you then, you poor lizard.

Thu, 02/02/2012 - 13:47 | 2120540 economics1996
economics1996's picture

I am getting drunk for sure this weekend.

Thu, 02/02/2012 - 14:04 | 2120611 blindfaith
blindfaith's picture



No, actually everyone at Princeton will want to take him to lunch and get some tips.

You are dealing with a bunch of Narsists, Ben is the King.

Thu, 02/02/2012 - 13:46 | 2120479 non_anon
non_anon's picture

i don't think Chubby Checkers expected the Twist to be this

Thu, 02/02/2012 - 13:30 | 2120480 The Axe
The Axe's picture

does this surprise anyone? they must!! and will continue in the future....its now impossible to turn away from this ...impossible


Thu, 02/02/2012 - 13:30 | 2120483 Bansters-in-my-...
Bansters-in-my- feces's picture


Off topic,but check out the 1 year lease rate on silver...!!!! Kitco silver lease rate chart...,.view and puke.

Just got lowered to 000000

Silver is gonna get wacked...

Thu, 02/02/2012 - 13:40 | 2120511 SilverRhino
SilverRhino's picture

Thanks for the heads up. 

Thu, 02/02/2012 - 13:41 | 2120514 BigMike
BigMike's picture

You're right the lease rates are falling. The 1 month lease rate is now negative. Does this mean silver will be weak for Feb?  Don't much about how this affects price movements.

Thu, 02/02/2012 - 13:48 | 2120544 kito
kito's picture

freebies for all cbs!!!!

Thu, 02/02/2012 - 14:08 | 2120627 blindfaith
blindfaith's picture



Hate to bring this up, but George Bush fixed the system when it instituted the order that banks ( JPM et al) do not have to cover their shorts when they are underwater.   They can ride them out to a better day.

So someone is playing with the market and we know it ain't the Hunt Brothers.

So everyone still believes they can play a fair game?

Thu, 02/02/2012 - 14:26 | 2120692 YC2
YC2's picture

If you think its rigged you can hedge accordingly as well.

Thu, 02/02/2012 - 13:32 | 2120490 DaveyJones
DaveyJones's picture

Yes Johnny, what is capitalism? Capitalism is an archaic economic method that was once practiced before the Goldman Republic   

Thu, 02/02/2012 - 14:31 | 2120710 moonman
moonman's picture

For capitalism any man would give his only begotten son. Also his freedom and wealth.

Thu, 02/02/2012 - 16:14 | 2121063 DaveyJones
DaveyJones's picture

you sure know your shit

Thu, 02/02/2012 - 13:35 | 2120499 Jason T
Jason T's picture

We  can ask Rudy Von Havenstein.. but he died the very month the German Mark died in November of 1923.  Shucks.  

Thu, 02/02/2012 - 13:43 | 2120527 connda
connda's picture

Picking up 60% of the 20-30 TIPS.  Hummm.

Thu, 02/02/2012 - 13:46 | 2120535 HD
HD's picture

"Bernanke's response was irrelevant"

Facts over bullshit. The simple beauty of not even acknowledging the spin.




Thu, 02/02/2012 - 13:47 | 2120538 James-Morrison
James-Morrison's picture

Why will interest rates raise at anytime in our lifetimes?

No money (besides fiat) combined with the golden rule "Don't fight the Fed", ensures that unless the Fed raises them, there are no players to drive up rates.   

Zero to Infinity.


Thu, 02/02/2012 - 14:24 | 2120685 TruthInSunshine
TruthInSunshine's picture


You are crediting the esteemed Fed & Chairman Bernanke with way too much ability to fight global market forces over anything exceeding a short (from a relative historical perspective) time frame, IMO.

Time, she's the keeper of all truths, and reveals all.

Thu, 02/02/2012 - 13:52 | 2120541 thedrickster
thedrickster's picture

DV01 = $ if Paul Volcker rode in on a gleaming white steed it would only cost the Fed $2T?

Right on.  Teacher when I grow up I want to be a bond vigalante.

Thu, 02/02/2012 - 14:17 | 2120652 blindfaith
blindfaith's picture



If you recall, Summers and Rubin wanted Volcker to go across the street to Faragate Square and feed the pigeons.  Obama agreed, and then I saw the light, there would be no fixing anything.


Thu, 02/02/2012 - 13:49 | 2120549 Everybodys All ...
Everybodys All American's picture

Question?  How much more of the short end can the Fed Reserve sell? Operation Twisted MF Global I believe ends in July. What then? Maybe they begin to naked short sell the short end. Hell if you're going all in stupid why not screw it up beyond all recall. These guys are insane and they are doing nothing to prove otherwise.

Thu, 02/02/2012 - 13:55 | 2120572 thedrickster
thedrickster's picture

Whatever happened to that Fed put writing story?

Thu, 02/02/2012 - 13:51 | 2120550 mammoth mo
mammoth mo's picture


This is the end game.  Print and buy any and all existing debt in the world.  At the end of this the FED will own the debt of Europe, the debt of the US, and the debt of any emerging country.

They will not even ask for any return on it.  Return's matter not.  It's all 100% bad debt.  In return for buying the debt the FED will control all the banks.  They will buy what the FED says and sell what the FED says.

This is the new market.  Dow 13,000 - S & P 1400 it doesn't matter.

The FED is now deciding all fundamentals.  No good stocks or bad stocks.  No sectors, no nothing.

The FED is all in on a credit system of the governments.  All governments that they like will have unlimited capital.  All that they don't they will try and squeeze out. 

From time to time they will create crashes to stick it to the unions and others with pensions.  But basically they are now firmly in control. 

Even if someone got in control and kicked the FED out.  It would plunge the global economy into a long term great depression.  The world is now damned if it does and damned if it doesn't.

The long term great depression is coming either way.  The FED is banking on no one wanting to pull that trigger in the forseeable future.  Until then is plenty of phony money at the top while the little guy gets squezzed by inflation of real products and energy.


Thu, 02/02/2012 - 14:04 | 2120612 francis_sawyer
francis_sawyer's picture

RobotTrader better hope Bernanke likes LULULEMON

Thu, 02/02/2012 - 22:02 | 2121976 dolph9
dolph9's picture

Parasites can't kill the host and still survive.

Thu, 02/02/2012 - 13:50 | 2120551 Zola
Zola's picture

This is why i have been dismayed by the market action in Gold and especially Gold stocks... it was obvious this was a QE3... WHAT THE HELL HAPPENED IN 2011 ? 

Thu, 02/02/2012 - 14:57 | 2120796 Alpha Monkey
Alpha Monkey's picture

I hear our markets are highly manipulated.  Especially for competitors to the dollar I imagine.

Thu, 02/02/2012 - 13:51 | 2120555 onebir
onebir's picture

At least the BoE QE is limited to 70% of any issue :s

Thu, 02/02/2012 - 14:01 | 2120604 francis_sawyer
francis_sawyer's picture

for now...

Thu, 02/02/2012 - 13:51 | 2120558 Sutton
Sutton's picture

"If  we need, we can sell assets", that worked out fine in May 2010 when Ben sold a few billion of MBS.

Imagine what the market will do if(WHEN) Ben has to sell ,or stop buying, tens and hundreds of billions of paper.

Thu, 02/02/2012 - 14:32 | 2120713 TruthInSunshine
TruthInSunshine's picture

Bernank is going to sell the Red Roof Inn (at a steep loss, given they intentionally paid 500% more than its FMV for it) and that should allow them to flatten the curve some more.

Thu, 02/02/2012 - 13:53 | 2120564 TooBearish
TooBearish's picture


Thu, 02/02/2012 - 13:58 | 2120587 Bob Sacamano
Bob Sacamano's picture

"what happens to the Fed's balance sheet when interest rates start rising?"

Uh, absolutely nothing.  The concept of "loss" and "equity capital" are meaningless to an entity which can and does create money at will.  They are not bound like us mere mortals.

Thu, 02/02/2012 - 14:01 | 2120601 Sandmann
Sandmann's picture

Socialism takes many forms and this is the most acceptable form to US Voters

Thu, 02/02/2012 - 14:55 | 2120787 Alpha Monkey
Alpha Monkey's picture

It's only acceptable because nobody understands the whole picture or even many of the smaller parts of it.

Thu, 02/02/2012 - 14:08 | 2120626 Poetic injustice
Poetic injustice's picture

To celebrate that, existing faces on Mnt. Rushmore will be replaced with FED chairmans faces.

Thu, 02/02/2012 - 14:29 | 2120705 PulledPorkBBQ
PulledPorkBBQ's picture

Tyler - it's been a while since you updated your charts/graphs of the Fed's balance sheet.  Will you post an update?  Thanks Man.

Thu, 02/02/2012 - 14:51 | 2120726 thedrickster
thedrickster's picture

DV01 isn't really the whole story, this isn't a linear problem. So the Fed has to raise, incurrs losses, prints up money to cover those losses thereby expanding the monetary base driving up commodity prices, thereby applying further pressure to yields, thereby.....And what of the Treasury? Rates increase, the public owns the short end, borrowing costs exponentially issuance follows, further depressing price/spiking yields...Yields can never again recouple with reality, a free market would be terminal.

I wonder if the Chairsatan is simply out of ideas or a sadomasochist?

Thu, 02/02/2012 - 14:45 | 2120750 youngman
youngman's picture

This is all great for the USA..but what about China..or somone else that has to use our currency because for now it is the worlds currency.....are they just going to sit baack and take the currency hit.....I don´t think so....that is why they are buying gold and silver...more than we know...because one day..they will dump their treasuries..Ben will have to buy them...send gold and silver to the moon as they buy up everthing they can...then call a summit and introduce the new world currency....something like that...and guess what...the rest of the world will jump on it in a heartbeat....and the USA will be speechless....and very very dangerous place to society will fall apart....


Thu, 02/02/2012 - 14:47 | 2120756 dcb
dcb's picture

1) why the bernank is an idiot.

I look at tlt as a bellweather. since credit has implied that stocks have a long way to fall I haven't moved as I should into risky assets.SNCE HE WANTS PEOPLE TO DO THIS, IT ISDEFEATING HIS PURPOSE. BUT MAYBE i SHOULD IGNORE IT AS AN INDICATOR. ALSO SPEAKING TO A FRIEND WHO IS A BOND TRADER TWO NIGHTS AGO.THEY BUY BIG BATCHES WHEN YEILDS RISE, AND THEY ARE THE ONLY BUYER. END the fed.

2) last time yeilds were held down people moved into risky assets for return, this of course cause all kinds of distortions and underpricing risk, leading to financial crisis. he's doing it again.

one thing you gotta love about the fed, is that they fit the definition of insanity by einstein. keep doing more of the same and expecting a different outcome.

Thu, 02/02/2012 - 14:49 | 2120762 dcb
dcb's picture

also why the fed can neveer raise rates, because the loss on their balance sheet would be huge. he's such a horses ass.

Thu, 02/02/2012 - 15:00 | 2120813 theyenguy
theyenguy's picture

Bonds, BND, traded lower on higher stocks, VT, VSS. Hopes for securing Euro zone debt sovereignty, and hopes of Greek debt sustainability, gave rally to International Corporate Bonds, PICB, and World Government Bonds, BWX, through rising world currencies, DBV, and Emerging Market Currencies, CEW.  The charts of currencies looked topped out. I expect fears of EU debt contagion to arise, and that investors will recommence competitive currency deflation, with the result being a disinvestment out of stocks, EWX, EMFN, EMMT, EMIF, and deleveraging out of commodities, DBC. As currencies fall, world government bonds, BWX, and emerging market bonds, EMB, will fall lower. How much longer TLT, EDV, and ZROZ will stay high, I do not know. The Interest Rate on the US 10 Year Note, ^TNX, closed at 1.84%. The flattner, ETF, FLAT, traded lower, evidencing a flattening 10 30 US Treasury debt yield curve which is seen in the chart of $TNX:$TYX, trading lower,yet the rally in US Treasuries, TLT, EDV and ZROZ is clearly over as their charts show a topping out pattern.   Mario Draghi’s LTRO facility and the EU Leaders’ debt brake turned back the hand of the bond vigilantes today.    

Thu, 02/02/2012 - 15:06 | 2120836 lizzy36
lizzy36's picture

Santelli obviously a fan, because he just quoted this post on CNBC.

Thu, 02/02/2012 - 15:23 | 2120900 VelvetHog
VelvetHog's picture

"Private investors are crowded out of the market when the Fed shows up as a large and powerful bidder..."

One may not crowd out buyers that do not exist. 

I sleep so soundly at night listening to the lulling sound of Helicopter Ben flying over head fighting the good fight.

Thu, 02/02/2012 - 15:31 | 2120918 Tsar Pointless
Tsar Pointless's picture

the ECB, is beyond broke

How can an institution that can print its own currency at will be "broke"? Is it the same way that a fish in the ocean is out of water?

Oh, I know. There are laws and regulations regarding ECB raw printing, I suppose is the answer.

But why raw print, when you can do it in a backroom and out of public view?

There's no telling how much fiat currency is in the hands of those in control and their cronies.

Laws and regulations are for little people, and I don't mean those who are vertically challenged either.

Thu, 02/02/2012 - 15:35 | 2120935 slewie the pi-rat
slewie the pi-rat's picture

well, we learned last Summer that chubbyChecker was QE, by definition

but not necessarily of the large-scale-asset-purchase type, since the FED already "owned" the short notes and bills and could change its "duration profile" without much printing under these circumstances

altho the FED has technically "monetized" 91% of the long-end, has it not also "un-monetized" (sold) it's shorter-duration holding so that the "net" monetization of the Ts is close to zer0? 

i don't ask that rhetorically, b/c i'm not sure of the answer, but i "think" it is yes

unfortunately, the chart only shows purchases of T products, not sales, and not net purchases, overall

warsh's editorial question is not irrelevant, but telling us something we don't already know might be nice once in a while, too, mrW:  As a result, the administration and Congress make tax and spending decisions—with huge implications for our standard of living—with heightened risks around future funding costs.

yep!  but this is common knowledge and has been true for generations, so wtf?  he nails it?  L0L!!!

whatever the wsj decides to enlighten its shitheaded readership about, next, the probability of it BEing:  MONEY = DEBT = BUllSHIT, BiCheZ!   is zer0

it isn't that mrW is "wrong" here, and maybe he'll get around to the "essential" debt problem b4 he retires;  i guess that would be up to him and/or his boss/advertizers/board/ and the "policy" of a consistently meaningless editorial fiddling while his 'rome' is burning a fiat fever of fuking biblical proportions

and, yeah. maybe benzelbub'll do the LSAP later, especially if he must which more and more "consensus" is agreeing upon will BE necessary so that means...  yeah, that one!

...wait and see what happens next? what else is there? 

i'm not saying this is good poilicy or the best policy, or a cogent policy, or that there won't be "unintended" consequences

but this IS the policy, and yep, he's "monetizing" 91% of the long end, too b/c he is actually following the policy he set out upon, here [and "de-monetizing" the short end?]

maybe i'm just brainwashed, but i understand the FED policy and i don't disagree with it, given the facts, much as i dislike the factual situ, itself, and see it as based on a fallacy and, therefore, failing

the current widespread (to me) delusional system is becoming less and less accepted since the possibilities of projecting it as "acceptable" are waning and may have reached criticality, for as the debt goes parabolic, the idea that [debt = money] is not valid for the human community seems to be keeping pace, nicely, doncha think?

when a system begins to display "runaway characteristics" it also develops "structural weaknesses"

i guess when you lose "control" you lose control!  trying to maintain the illusion of control doesn't asctually do too much for those developing systemic structural probs, tho

which is why we make so much popcorn as we watch the oligarchs' clowns cavorting meaninglessly upon the stage of their delusions

thank you for the entertainment, mrW!

Thu, 02/02/2012 - 15:56 | 2121000 Eric L. Prentis
Eric L. Prentis's picture

“Twist is nothing but stealth QE3.” Now I understand why gas prices are the highest they have ever been, at this time of year. Gas by May 2012 will most likely be way over $4.00 dollars a gallon. The average American takes it in the neck again, just to bailout Wall Street criminals. The addition of $10 trillion dollars to the national debt is screwing us, and for what, just to keep the rotten banksters in power.

Thu, 02/02/2012 - 15:58 | 2121003 AldoHux_IV
AldoHux_IV's picture

Ending the fed has never been so easy... especially when the perpetuation of broken system comes to the grinding halt thanks to that thing we call reality.

Thu, 02/02/2012 - 16:35 | 2121153 YesWeKahn
YesWeKahn's picture

You guys are funny. Ben is out of law. Nobody can say anothing about it. If you are against him, you are against the economic recovery, you are against america, very simple. get it and eat it now.

Thu, 02/02/2012 - 17:23 | 2121312 Papasmurf
Papasmurf's picture

There's plenty of room to grow.  They can buy a few hundred precent of shorts from the long end of the curve before they run out of liquidity.

Thu, 02/02/2012 - 17:36 | 2121340 PMakoi
PMakoi's picture

"Finally, what happens to the Fed's balance sheet when interest rates start rising? Holding a portfolio with a duration greater than it has ever been, the DV01 is currently well over $2 billion (i.e. a $2 billion loss on every basis point increase in rates). And rising."

The Federal Reserve, a private corporation, files for bankruptcy protection.  Ah-hahahahahahaha, madness ensues!!  You're all vaporized MFer's! 


Thu, 02/02/2012 - 18:13 | 2121438 sidkof
sidkof's picture

my buddy's step-sister makes $68/hour on the internet. She has been without work for 8 months but last month her paycheck was $7255 just working on the internet for a few hours. Go to this web site and read more..

Thu, 02/02/2012 - 20:02 | 2121706 saulysw
saulysw's picture

Anyone hungry for some SPAM?

Thu, 02/02/2012 - 20:02 | 2121707 saulysw
saulysw's picture

Just wanted to say : "The snake is eating itself"

Thu, 02/02/2012 - 20:05 | 2121715 RiverRoad
RiverRoad's picture

Seems like the Fed knows that in the coming Dark Ages the rest of the world will be on their knees begging to buy our long bond.

Thu, 02/02/2012 - 23:36 | 2122117 Dorky
Dorky's picture

What happens when Twist ends? Twist will NEVER end until the US economy truly recovers on a solid footing.

Will the 30 Year collapse? No, at least not until the US economy truly recovers. And not until the Fed finally decide to be net seller.

What happens when there is no explicit back stop to the long end? The Fed will be the ultimate back stop. No worries.

What happens to the Fed's balance sheet when interest rates start rising? With the Fed being the ultimate major owner of the long-term treasuries, it will be a very long way to go before we can reasonably expect the interest rates to rise.


I believe I have answered Tyler's very basic and simple questions.


And probably someone will ask if the entire operation will be extremely costly to the Fed.

Well, the answer is not at all as the Fed is hedging its profit prospects in the US economy. And all these hedges is carried out with the Fed's own money creation. And all these money creation can easily be locked up in the banking system as reserves. These reserves can be used continuously to support the US debt and be rolled over indefinitely at close to costless with the rock bottom interest rates. The entire cycle is a perpetuation of fake monetary system where much money is created to bid down the interest rates while at the same time use the newly created money to support further debt costlessly. The only problem now is whether the US government can manage its deficit and debt/GDP.

Thu, 02/02/2012 - 23:45 | 2122131 Dorky
Dorky's picture

It just crossed my mind to write another point.

All those newly created money currently locked up as excess reserves are here to stay, or else the Fed would be creating its very own deflation. And these excess reserves will continue to be used to fund new US government debt until it is completely used up. Then the Fed will have no choice but to do another round of massive QE. To buy time, the US government will have to cut spending drastically and increase tax but to make these drastic measures work, the size of the government will have to be significantly reduced. Nevertheless, those social security and medicare/medicaid will still come back to haunt us in the end. We are cruising directly into a huge iceberg and it's just a matter of time before another Titanic sinks.

Wed, 09/19/2012 - 18:25 | 2813138 deagle44
deagle44's picture

So what if the fed has to sell the bonds for a loss?  It doesn't matter.  Why does zerohedge keep bringing this up? 

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