Bond Losses at Federal Reserve Top $192 Billion

objectETF Guide – by Ron DeLegge

The yield on 10-year U.S. Treasuries (^TNX) has surged 66% over the past three months. And bond investors, especially those with jumbo-sized positions, are getting hammered. How much money has the Federal Reserve lost?

At the end of July, the Federal Reserve held $1.98 trillion in U.S. Treasuries. (See chart below) That figure represents just over half of the Fed’s $3.6 trillion balance sheet.   

Scott Minerd, the Global Chief Investment Officer at Guggenheim Partners notes:

“Our estimate shows that the spike in bond yields since the first quarter of this year has caused a mark-to-market loss of $192 billion on the Fed’s holding assets, equivalent to approximately all of the unrealized gains that the Fed had accumulated since it began to implement quantitative easing in late 2008. Although in keeping with their own accounting principles the Fed does not record mark-to-market losses, a continued increase in bond yields would incur actual losses should the central bank decide to sell assets.”

Investments benefiting from rising rates are leveraged short Treasury ETFs like the ProShares UltraShort US Treasury 20+ Bond ETF (NYSEARCA:TBT) and the Direxion Shares US Treasury 20+ 3x Bear Shares (NYSEARCA:TMV). Both ETFs have jumped between 30% to 50% over the past three months. Not bad when considering the total U.S. bond market (NYSEARCA:AGG) has lost 2.83% while long-term U.S. Treasuries have fallen an even harder 11% year-to-date.

Granted, the Bernanke & Co. does not value its massive bond portfolio on a mark-to-market basis. But the surge in interest rates has already erased almost $200 billion in the Federal Reserve’s capital. But that’s not all.

If interest rates continue to head higher, the value of the Fed’s liquid assets that it could sell would decline and further undermine its capital cushion. And if the velocity of rate increases intensifies, the Fed, with only $62 billion in capital, could see its entire capital base completely wiped out.

This could have a serious domino effect. It could paralyze the Fed’s ability to defend the dollar’s purchasing power, causing Treasury prices (NYSEARCA:TLT) to fall further and thereby push interest rates even higher. Just imagine the unimaginable; a weakened and impotent Fed.

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6 thoughts on “Bond Losses at Federal Reserve Top $192 Billion

  1. It doesn’t look like they’ll be able to conceal the fraud that our monetary system is for much longer, but then again, I’m surprised it didn’t collapse years ago.

    Our “money” has no basis in reality. They just keep doing the arithmetic, and completely ignore the missing fundamentals of a healthy economy.

    1. Exactly! As light as those chairs are, if they place too many of them at one end of the Titanic, it could be enough to take it down.

      Remember that straw that broke the Camel’s back?
      . . .

  2. “Capitalism” must DIE. USURYISM hates Freedom. Capitalism is the arch-enemy of Freedom and Liberty. About that “sacrosanct” capitalism. Is it EVER mentioned in the Constitution? Did the Founding Fathers believe in USURY? NO, they DID NOT believe in BANKER USURY. The Constitution protects PROPERTY, but I can’t seem to find CAPITALISM in there.
    Throughout history, even before the birth of Christ, usury has been denounced. Aristotle called the birth of money from money ” unnatural”. Today the Federal Reserve prints paper with numerical images and calls it money. The only standard applied today is a value based on speculation which is led by oil in the global economy. After that the debt game starts with values based on who owes what to whom.
    Some of the founding fathers like Thomas Jefferson called banks “more dangerous than standing armies.” Andrew Jackson told a group of bankers they were a “den of vipers and thieves.”
    And Jesus reacted this way — ” And He found in the temple those who sold oxen and sheep and doves, and the money changers doing business. When he had made a whip of cords, He drove them from the temple, with the sheep and the oxen, and poured out the changers’ of money and overturned the tables” ( John 2:14-15 )

  3. Perhaps I’m connecting dots here that cannot be connected, but I’m reminded by this article of earlier news last week of the outrageous amounts of money, as in nearly half a billion dollars, spent on keeping just a handful of prisoners locked up in GTMO. It doesn’t matter to our government if they spend millions of dollars per prisoner to lock up people who haven’t done anything, because whatever cockamamie excuse to feed more money into the economy to pay the interest on the old debt works for them. The Fed and their debt-based money system have turned our economy into a dog chasing its tail, with the dog having to spin faster and faster as the total interest payments rise. This is the simple mathematical outcome of the law of exponentials which was set in motion the day the Fed created its first FRN. The last decade has been an endless series of games to keep the dog spinning a little longer. The dog is about to collapse in an exhausted heap.

    Blogger Charles Hugh Smith wrote an excellent piece a couple of days ago titled “The Fed Doesn’t Control as Much as You Think It Does” It reminds me of the classic quote from Ayn Rand: “You can ignore reality, but you can’t ignore the consequences of ignoring reality,”

  4. Those that confuse religion as the shining light vs greed & depravity need only to remember the bearer of the light was Lucifer! Think more of the logic/not logic method of the Evil Elitist Hoard, what they represent & then apply common sense to the issue! Do not ask anyone or anything to solve these issues, rise up, the same mistakes have been made by believing all that they read for thousands of years & if you can’t see the examples before your eyes I pity your life results………..Continue to fight for Liberty, Freedom, TRUTH & Justice

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