Fed Holdings Of U.S. Treasuries Surpass China's

Seeking Alpha ^ | 2-6-2011 | Doug Carey

[April Lexington]

Think about this... nobody but the Fed will buy 40% of the Treasuries at the prevailing interest rates! This is not a market. If the Fed stops buying, wither the Treasury only sells $900 billion and can’t pay its bills or the other $600 billion is sold at higher interest rates which will trickle through the global bond market at lightning speed and raise interest rates to painful levels. YOW!

[Toddsterpatriot]

Think about this... nobody but the Fed will buy 40% of the Treasuries at the prevailing interest rates!

Somebody other than the Fed bought 100% of Treasuries at the prevailing rate.

If the Fed stops buying, wither the Treasury only sells $900 billion and can’t pay its bills or the other $600 billion is sold at higher interest rates which will trickle through the global bond market

Rates are higher since the Fed started buying the $600 billion.

[Toddsterpatriot]

the primary dealers are putting their balance sheets on the line believing they can bid at a rate, get the bonds and sell the bonds to investors to turn a profit on the trade.

You don't think the Primary Dealers are guaranteed a profit, do you?

If they could not profit on the trade, they would not trade.

They profit on every trade?

They are not in the business of buying Treasuries to hold or to lose money.

How many Treasuries do they hold in inventory?

If ONE major buyer steps out of the market (like the Fed with its 40% of the aggregate demand)the primaries are stuck holding bonds.

If you want to play in the big leagues, sometimes you get stuck holding bonds.

The Fed is buying up bonds to keep interest rates low not for fun and excitement.

Is it working?

If interest rates continue to increase, bond holders will see continued depreciation in portfolio value unless held to maturity.

I'd hate to borrow overnight to finance long term Treasuries if rates continue to rise.

[April Lexington]

Per your graph, if the Fed is only slowing the rate of increase in 10 yr rates, then The Comedian needs to post that great photo of the mom and little girl in the roller coaster. If the Fed can’t control interest rates by buying “excess” treasuries from the Primaries, then the rope is slipping through the fingers. I hope you are wrong but I fear you are correct. The Fed, ultimately, cannot control interest rates in a global market without folks like me living in dirt floor huts... Gloom and doom prevails...

[Toddsterpatriot]

Anyone who thinks the Fed can control any but the overnight rates doesn’t know anything about history.

[April Lexington]

I used to know lots about history. But, nowadays... they keep changing it! If not to influence the 10 year rate, why bother with QE?

[Toddsterpatriot]

They can try....they can hope....doesn’t mean they’ll be successful.

[April Lexington]

I see your point. Wishin’ won't make it so... If QE doesn't work, it could get a bit messy with all that new money floating around.

[Toddsterpatriot]

If QE doesn't work, it could get a bit messy with all that new money floating around.

Yup.