ICBM Bernanke
March 18th, 2009 3:06 pm | by John Jansen |Helicopter Ben is no longer the appropriate appellation for the Chairman of the Federal Reserve System. Under the tutelage of this former economics professor, Chairman Bernanke launched an ICBM into the market today and I will dub him ICBM Ben.
The Committee voted to expand the balance sheet of the Fed by a whopping $1.150 trillion. The Fed will buy an additional $750 billion mortgages,an additional$100 billion agencies and for the first time they have added $300 billion longer dated Treasuries to the list.
The move in the market is huge,historical and hellacious.
I do not have Bloomberg and I am operating from a WSJ page with about a two minute lag so treat this cautiously.
The 30 year bond is getting smoked. It is underperforming dramatically. This morning as I wrote my opening post the 10 year/30 year spread was 82 basis points (3 percent and 3.82 percent). The spread is currently 100 basis points.
The 2year/5 year/30 year spread opened this morning at 90 basis points. It stands now at about 130 basis points.
The 2year/5 year spread opened today at 96 basis points. It is now 73 basis points. The 5 year has flattened 23 basis points against the 2 year note.
The 5 year/30 year spread began the day at 186 basis points and is now 207 basis points. That spread has steepened by 21 basis points.
9 Responses to “ICBM Bernanke”
By Anonymiss on Mar 18, 2009 | Reply
Hi John,
Any idea where one might look to find a maturity break-down for all outstanding Treasuries? Treasury’s website gives some info, but it looks like they provide it only for private investors.
By vacation1999 on Mar 18, 2009 | Reply
I don’t get it. Maybe I’m just being clueless but where is the fed getting the money to buy all this stuff? Is treasury issuing bonds to borrow money only to have the fed use it to buy back the same debt that was issue???? Anyone know how this all works?
By Doug P on Mar 18, 2009 | Reply
Anonymiss, I’ve been thinking along the same lines recently.
Been considering building a model of where all the debt is on the maturity range and modeling the servicing.
Also curious if there’s a breakdown somewhere which would ease the grunt work in teasing it out of the treasury direct site.
By John Jansen on Mar 18, 2009 | Reply
I will look. isnt there a bureau of public debt? i cant imagine it is not readily available on some web page.
By Alex on Mar 18, 2009 | Reply
John,
Is this it?
By Tony on Mar 18, 2009 | Reply
vacation1999,
The fed literally prints more money, ie, “reflates” the currency in order to buy the debt paper and Treasurys. Only the fed reserve has the authority to do this. This is intended as a correction of the deflation that we are experiencing. Masterstroke (as long as the reflation doesn’t go too far and cause inflation, but even then, inflation is fairly easy to notice and correct.) IMHO, this is a significant catalyst to the market.
By Anonymiss on Mar 18, 2009 | Reply
Thanks, Alex — that was helpful!