Risk-Free Money From The Fed: Frontrunning Today's POMO

Since the New York Fed's 20-some year olds who are in charge of the Open Market Operation desk have made it clear it is everyone's patriotic duty to frontrun the Fed, courtesy of their "complex" algorithms, below we present the full frontrunning cheat sheet for today's last for the current schedule $7-9 billion POMO focusing on bond due 2016-2017. Those who wish to take no risk whatsoever should merely buy the 10 Cheapest bonds as predicted by Morgan Stanley's treasury spline. Note that the November CUSIP is now cheapest to deliver and should therefore be on the Exclusions list. Also, not surprisingly the December 7 year auction is sufficiently underwater on a relative cheapness to sector basis, that if any PDs actually offer it for sale, then we know for a fact that the spreads on the bid/ask offered by the Fed are so large they more than offset capital losses on actual exit trades and should be sufficient for Ron Paul to demand a congressional inquiry into just how much the Fed pays the PDs in commission spreads in each and every POMO.

Those wishing to make a virtually risk free profit should buy the bonds in the top 10 box to the right, and sell shortly after the end of POMO. And don't forget to thank Mr. Frost's algorithm.