The Banking and Strategy Initiative

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The Thursday Fed Update: 30 Y Bond Scare reignites QE, Gold and Silver firm up

The 30Y Auction Bid Cover ratio dwindled steeply to 2.4 from 2.7-3 levels of earlier with a low yield of 1.62% even as Fed Balance sheet assets expanded to $2.871 T. The money supply was under attack to from the seasonal variations losing another $12.2 B from last week even as the Fed was actively pursuing its Buy back program for MBS, holdings up $16.2 B in the week.

The 30 Y bond auction weakness was not entirely unexpected with the large borrowing program, but investors have surprisingly remained interested in the long bonds since January 2012 and the current weakness is probably more serious than eternal optimists have been arguing. Meanwhile MBS holdings already make $867 B of the $2,871 B in Fed Assets a tad more than 30%, the T Bills taking up most of the space at $1.6T

The Central Bank Liquidity Saps stock is currently $23 B of the Fed’s holdings, twice its holdings of Gold and 4 times its holdings of SDRs. maiden Lane holdings have reduced $41 B over the year from June 15 last year.

Gold,m Silver and Oil are in the meantime rallying ahead of plans to extend the usage of the Central Bank Swaps program ahead of the FOMC meeting next week with Greek elections scheduled for Sunday

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