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The Federal Reserve bought more bonds than participants had expected as they took down $ 7.5 billion bonds in the 7 year through 10 year sector. They were aggressive in terms of the par amount taken, but when viewed against what was offered to them they left over $ 13 billion on the table. Sources report to me that they essentially paid offered side and not much more for bonds.

The biggest single issue that the central bank purchased was the 7 year note. They bought $ 2.836 billion of that bond.

I have two comments on that. I would suspect that a combination of dealers and large institutions viewed this exercise as an opportunity to surreptitiously offload very large blocks of paper in front of the 5 year auction today and the auction of a new 7 year tomorrow. Conspiracy theorists will suggest that they are hyping the market in front of massive sales by the Treasury.

It is incontrovertible, however, that they are buying a very expensive piece of paper. The 7 year trades flat to the 5 year and the 10 year on the butterfly. Last month when the Treasury auctioned that bond it was 40 basis points cheap to 5s and 10s. So the central bank has a multibillion dollar appetite for expensive paper.

Source: Bonds: Today's Fed Buyback