Fed Failure Evident Now in Treasury Market, Time to Readjust the QE Scheme?

Quantitative easing FAIL!

The Fed is dead-set on destruction and we know this, but hopefully they realize that the ominous signs are all around. Sharks in the water? Yeah right, this is bigger than that.

Via WSJ's Real Time Economics, the bond market is screaming in agony but will the Fed listen?

To date, the Fed has purchased a little less than half of the $300 billion it has pledged to buy in Treasurys by the fall, yet long-end Treasury yields have continued to trek stubbornly higher since March and are now beginning to pull mortgage rates up with them.

To keep rates from moving even higher from here, now is the prime time for the Fed to fine-tune its programs. That may not necessarily mean increasing the amount it buys — which might have the unwanted effect of undermining the dollar. Rather, the Fed should be more targeted in the maturities it buys, Treasury market participants urge.

Treasurys maturing in five to 10 years should be the focus of the Fed’s buying, said Ward McCarthy, managing director at Stone & McCarthy. McCarthy sees no need to increase the overall amounts, but urges the Fed to dedicate “as much heavy artillery as possible” to those maturities.

Cute, but I argue here that the Fed doesn't have any heavy artillery and exhausted its options quite some time ago. They've got some Nerf arrows, a slingshot, and a bag of rubberbands. Good luck.

Higher Treasury yields come amid tentative signs of economic improvement. Traders and investors are also demanding higher returns in response to the huge amount of new Treasurys on offer this year at a time when there are fewer primary dealers to buy the debt. Goldman Sachs estimates the government could sell some $3.5 trillion in Treasurys this fiscal year ending September, dwarfing the amount of Fed buying.

This week, yields rocketed decisively higher, breaking through key psychological levels. Adding to the sell-off were worries about the U.S. ratings outlook, even though the three major ratings firms all noted that the U.S. triple-A rating isn’t under any threat for now. Higher Treasury yields upended the mortgage bond market — the 10-year Treasury yield is the benchmark for fixed-rate mortgages — further exacerbating the sell-off in government debt.

You couldn't pay people to take this shit! Now that's funny.

Perhaps if we were going to head down this path eventually anyway we should have done so a tad bit earlier on? I seem to remember my favorite Fed President recommending as much while Janet Yellen was still blabbering on about F-bills.

So, uh, what happened to that plan to sop up the excess funny money sloshing around the system with Treasurys? Looks to me like the only thing we'll be sopping up here is blood.

Run Fed Run!!

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.