Helicopter Ben Turns into Ballistic Missile

Includes: BLV, TLO
by: John Jansen

Helicopter Ben is no longer the appropriate appellation for the Chairman of the Federal Reserve System. Under the tutelage of this former economics professor, Chairman Bernanke launched an ICBM into the market today and I will dub him ICBM Ben.

The Committee voted to expand the balance sheet of the Fed by a whopping $1.150 trillion. The Fed will buy an additional $750 billion mortgages, an additional $100 billion agencies, and for the first time they have added $300 billion longer dated Treasuries to the list.

The move in the market is huge, historical and hellacious.

I do not have Bloomberg and I am operating from a WSJ page with about a two minute lag, so treat this cautiously (and see update below).

The 30 year bond is getting smoked. It is underperforming dramatically. This morning as I wrote my opening post the 10 year/30 year spread was 82 basis points (3 percent and 3.82 percent). The spread is currently 100 basis points.

The 2year/5 year/30 year spread opened this morning at 90 basis points. It stands now at about 130 basis points.

The 2year/5 year spread opened today at 96 basis points. It is now 73 basis points. The 5 year has flattened 23 basis points against the 2 year note.

The 5 year/30 year spread began the day at 186 basis points and is now 207 basis points. That spread has steepened by 21 basis points.

Update: The Fed just announced that it will concentrate its purchases in the 2 year sector and the 10 year sector. That is why the bond is lagging so significantly.