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 M¢25  Funded By Mahalo ? |  June 27, 2009 01:30 PM

Is the fed on schedule to buy $300 billion worth of US bonds?

The bond market got a shock when the fed announced it would buy a total of $300 billion. The fed has spent about $156 billion so far.

Rates dropped 17 percent.

How long will it take the fed to purchase $300 billion worth of US bonds?

How many billions worth of US treasuries can the fed buy per week?

How will bond traders profit from this announcement?
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Best Answer  Chosen by Asker

 
June 27, 2009 04:11 PM
The current plan is for the Fed to purchase 1.75 Trillion in bonds.

see

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=anGFuvGuFbRs

They will not announce these purchases.

How long to purchase 300, billion. If they were available, about a minute.
Obviously they will not do it that fast. They will purchase daily or weekly with a close eye on the market. If the market reacts too quickly, they will pause.

It will not be possible to track these purchases because there are thousands of dealers, thousands of banks, thousands of S&Ls, and thousands of credit unions that are constantly selling ( and buying ) treasury securities. This does not include state and foreign governments and hundreds of thousands of individual investors with "Treasury Direct" accounts. They will be buying from all these sources.

How many can they buy per week. Depends on how many are for sale. They will not go out and actively bid up the prices.

Bond traders will profit in two ways.

1) The bond prices will vary up and down in a fairly narrow range for a while. They will trade in this range.

2) The massive budget deficit the government is planning will require borrowing several trillion dollars. Supply and demand will force the price of bonds down as supply increases. This will result in increased interest rates since there is a direct inverse relationship between the price of a bond and its yield. Long term traders know that over the long term the price of bond is going down. They will profit by shorting the bonds.
Source(s):
See links above
Personal experience

Asker's Rating:
• $300 bil = US treasuries
$1.25 tril = MBS
$200 bil = Other securities


Helpful Answer?  (0)   (0)    Tip williamwaco for this answer
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