First Emergency POMO Oversubscribed As Fed’s “Whatever It Takes” Moment Arrives

The result of the Fed’s first emergency POMO is out.

Less than half an hour after the NY Fed announced it would conduct six emergency POMOs staggered across the entire day on Friday, and amounting to a total of $37 billion in securities across the curve from 0 to 30 years, as per the following schedule:

• 20 to 30 year sector at 10:30 – 10:45 am and 2:15 to 2:45 pm for around $4 billion each
• 7 to 20 year sector at 11:15 – 11:30 am  for around $5 billion
• 4.5 to 7 year sector at 12:00 – 12:15 pm for around $8 billion
• 2.25 to 4.5 year sector at 12:45 – 1:00 pm for around $8 billion
• 0 to 2.25 year sector at 1:30 – 1:45 pm for around $8 billion

… moments ago we got the result of the first POMO which targeted TSY bonds in the 20-30 year sector, and which not surprisingly was oversubscribed with $5.384BN in securities submitted for sale to the Fed, of which the maximum, or $3.999 billion was accepted.

Expect five more POMOs today, with another 20-30 year operation concluding at 2:45pm today – that much is known. What is not known is whether the Fed will be successful in calming the unprecedented lack of liquidity that is haunting what until this week was the world’s deepest and most liquid market in the world. 

If it can’t, it will get awkward especially since as BMO Capital Markets’ rates strategist Jon Hill says, the Fed’s move to buy bonds all the way out to the 30-year maturity is the central bank’s “whatever it takes” moment.

“The Fed is obviously deeply concerned about Treasury market functioning and is willing to do whatever it takes to try to backstop,” Hill told Bloomberg in a call, pointing out that including cheapest-to-deliver securities – i.e., those which are targeted by RV funds, is notable as it shows policy makers adapting to circumstances on the fly to provide support.

What he really meant, is that what the Fed is doing is bailing out those macro funds which have put on Treasury basis trades on, and which without the Fed’s liquidity, would end up a catastrophic cascade of LTCM-like disasters, something we first explained in December in “”The Fed Was Suddenly Facing Multiple LTCMs”: BIS Offers A Stunning Explanation Of What Really Happened On Repocalypse Day.”