Half Of The Day's Emergency POMOs Done As Fed's "Whatever It Takes" Moment Arrives

Update: In what has been an absolutely nerve-wrecking day for bond trading desks, where the Fed is desperately trying to restore some liquidity in the frozen treasury bond market, at 12:15pm the Fed concluded the third (of six!) emergency POMOs, when the Fed purchased $8BN in TSYs in the 4.5 - 7 year sector, which followed the second daily POMO in which the Fed eagerly soaked up $5BN in TSYs in the 7-20 year bucket.

Predictably, both POMO were substantially oversubscribed, with the 7-20 POMO seeing $9.175BN in total submissions of which $5.001BN were accepted, while the most active POMO so far was the 4.5-7Yr POMO, which saw dealers submited a whopping $26.804BN in TSYs, of which $8.001BN were purchased. Of note, the latest 7Yr (ZB9) and 5Yr (ZC7) Treasury auctions were on the exlusion list, meaning the Fed clearly did not want to be accused of monetizing the latest "on the run" issuance.

Here is the breakdown of the 4.5-7 Year bucket...

... and here is the 7-20.

There are three more POMOs still to come, as well as another massive emergency repo, as announced yesterday.

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The result of the Fed's first emergency POMO is out.

Less than half an hour after the NY Fed announced it would conduct six emergency POMOs staggered across the entire day on Friday, and amounting to a total of $37 billion in securities across the curve from 0 to 30 years, as per the following schedule:

  • 20 to 30 year sector at 10:30 – 10:45 am and 2:15 to 2:45 pm for around $4 billion each
  • 7 to 20 year sector at 11:15 – 11:30 am  for around $5 billion
  • 4.5 to 7 year sector at 12:00 – 12:15 pm for around $8 billion
  • 2.25 to 4.5 year sector at 12:45 – 1:00 pm for around $8 billion
  • 0 to 2.25 year sector at 1:30 – 1:45 pm for around $8 billion

... moments ago we got the result of the first POMO which targeted TSY bonds in the 20-30 year sector, and which not surprisingly was oversubscribed with $5.384BN in securities submitted for sale to the Fed, of which the maximum, or $3.999 billion was accepted.

Expect five more POMOs today, with another 20-30 year operation concluding at 2:45pm today - that much is known. What is not known is whether the Fed will be successful in calming the unprecedented lack of liquidity that is haunting what until this week was the world's deepest and most liquid market in the world. 

If it can't, it will get awkward especially since as BMO Capital Markets' rates strategist Jon Hill says, the Fed’s move to buy bonds all the way out to the 30-year maturity is the central bank’s “whatever it takes” moment.

"The Fed is obviously deeply concerned about Treasury market functioning and is willing to do whatever it takes to try to backstop," Hill told Bloomberg in a call, pointing out that including cheapest-to-deliver securities - i.e., those which are targeted by RV funds, is notable as it shows policy makers adapting to circumstances on the fly to provide support.

What he really meant, is that what the Fed is doing is bailing out those macro funds which have put on Treasury basis trades on, and which without the Fed's liquidity, would end up a catastrophic cascade of LTCM-like disasters, something we first explained in December in ""The Fed Was Suddenly Facing Multiple LTCMs": BIS Offers A Stunning Explanation Of What Really Happened On Repocalypse Day."