{"id":656494,"date":"2026-08-23T16:50:00","date_gmt":"2026-08-23T16:50:00","guid":{"rendered":"https:\/\/buglecall.org\/?p=656494"},"modified":"2026-08-23T16:50:00","modified_gmt":"2026-08-23T16:50:00","slug":"the-fed-owns-over-50-of-all-bonds-maturing-between-10-and-15-years-from-now","status":"publish","type":"post","link":"https:\/\/buglecall.org\/?p=656494","title":{"rendered":"The Fed Owns Over 50% Of All Bonds Maturing Between 10 And 15 Years From Now"},"content":{"rendered":"

The Fed Owns Over 50% Of All Bonds Maturing Between 10 And 15 Years From Now<\/span><\/p>\n

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Submitted by Peter Tchir of Academy Securities<\/a><\/em><\/p>\n

Treasuries, Treaties, and Treatises<\/h3>\n

Let\u2019s start with Treasuries. We laid out the approach we would take if we were Warsh last weekend in Warsh\u2019s Mark Antony Moment<\/a> (a play on coming to \u201cbury\u201d inflation, yet having quite the opposite effect, at least in terms of interest rate policy).\u00a0<\/p>\n

After Bessent\u2019s \u201cattempt\u201d to drive bond yields lower, we analyzed the possibilities in Treasury, Treasuries, The Fed, and Iran<\/a>. The primary focus was on bonds, though we had to toss in the \u201cpossibility\u201d of Economic Armageddon for Iran.<\/p>\n

On Monday we discussed the Fed on Fox Business, but they picked up our theme on Tuesday where Academy was the chyron on Varney & Co<\/a>.\u00a0Academy had the pleasure of spending the first half hour on Bloomberg TV<\/a> on Thursday where we covered rates, Iran, energy, Global ProSec, and maybe even Situational Awareness (it all becomes a bit of a blur).<\/p>\n

Please read Thursday\u2019s report, in conjunction with last weekend\u2019s report (or watch the video links) to get a sense of our outlook for Jackson Hole and what the Fed should (or needs to do) to support Bessent\u2019s efforts.<\/p>\n

Today, we will add some additional information to reinforce our take on the power of a Federal Reserve Operation Twist.<\/p>\n

A Fed \u201cOperation Twist\u201d Is the \u201cReal\u201d Deal<\/h3>\n

As of today, according to Bloomberg, the U.S. government has $7.5 trillion of T-bills outstanding and $21.7 trillion of coupon debt outstanding.<\/p>\n

Bessent is buying \u201cat least $4 billion\u201d per \u201coperation.\u201d These operations are almost weekly, and while the threat of \u201cat least\u201d is interesting, jumping from $2 billion to $4 billion wasn\u2019t enough to move markets for long. This is NOT QE.<\/strong> Gold rose, and the dollar fell, in response to Bessent. Likely overdone as this is more about re-arranging the deck chairs, rather than creating \u201cmoney,\u201d which is what the \u201cdebasement\u201d trade seemed to buy into.<\/p>\n

\"\"<\/a><\/p>\n

I\u2019m not sure the Treasury Secretary should ever refer to any part of the US yield curve as illiquid<\/strong>. But Bessent did. Maybe he is remembering the \u201cgood old days\u201d when nothing happened in August. I don\u2019t think this August was sleepy, nor particularly illiquid.<\/p>\n

Having said that, the Federal Reserve owns over 50% of all bonds maturing between 10 and 15 years from now. <\/strong>That seems a long way from \u201cfree\u201d markets. The Fed\u2019s holdings of longer-dated bonds are quite high (nearing 20%). It might be illiquid and partially \u201cartificial,\u201d but not in the way that Bessent implied<\/strong>.<\/p>\n

\"\"<\/a><\/p>\n

The Fed owns almost half a trillion of bonds maturing within the next year.<\/strong><\/p>\n

These are coupon bonds (not T-bills).<\/p>\n

The average coupon is 2.9%, so the Fed is bleeding money. They own, on an accrual counting basis, these bonds at the yield they purchased them at (probably lower than 2.9%) and fund at Fed Funds Effective (3.63%). It explains why the Fed was helping to \u201cartificially\u201d reduce the deficit with their payments to Congress, and now they are adding to our deficit woes by bleeding carry.<\/strong><\/p>\n

Let\u2019s imagine the Fed selling that $426 billion, and buying the same notional amount of bonds with 20+ years maturity. A small up-front loss (they\u2019d have to monetize the premium they paid for their bonds), but a very big pick-up in carry (5.25% or so on carry vs funding of 3.63%). It would also represent over 15% of the total amount of bonds with a maturity of 20 years or more (and over 20% of the float the Fed doesn\u2019t already own).<\/p>\n

If they decided to do the same with their bonds maturing in 1 to 3 years, they\u2019d have a bigger up-front loss, but more carry going forward, and would own over 50% of the debt outstanding.<\/p>\n

I don\u2019t know what percentage of ownership constitutes \u201ccornering\u201d a market, but we\u2019d pretty much be there.<\/strong><\/p>\n

From Warsh\u2019s perspective (and that of all Fed members), Operation Twist does NOT count as QE because it keeps notional amounts the same.\u00a0If the admin wants to see the long end of the yield curve go down, they need to stop \u201cplaying\u201d with the amounts Bessent controls and go all in on a Fed-driven Operation Twist.<\/strong><\/p>\n

Can\u2019t say I\u2019m a fan, but why not?<\/p>\n

In the coming days we should find out if Bessent is \u201con his own\u201d or if the Fed is throwing their weight behind his efforts to control the longer end of the bond market.<\/p>\n

When Bond Traders Say \u201cDone\u201d \u2013 They Mean \u201cDone\u201d<\/h3>\n

Whatever else you learned in school, or on the trading desk, the most important thing you are taught is \u201cdone means done.\u201d<\/strong> You\u2019ve committed your capital (or the firm\u2019s capital) and it might be a good or bad decision, but you are \u201cdone.\u201d You are stuck with that trade. Trying to back out, or change the terms, or beg for some accommodation, may work (exactly once), but your reputation is toast.<\/p>\n

I haven\u2019t done a deep dive on any of the following (so I could be wrong), but it is difficult not to see a pattern emerging, that seems problematic down the road. There are many factors outside the public domain, and we all know negotiating deals is not easy, especially when the parties involved are very far apart on many of the issues. However, the concern is that the negotiating strategy we sometimes use could be misconstrued by certain countries and work against us in some circumstances.<\/p>\n