Zero Hedge: The Fed's D-Rate: 4.5% At Dec 31, 2013... And Dropping Fast

Submitted by Tyler Durden 

Excerpts:

• In April of 2010, Zero Hedge first brought up the topic of the Fed's DV01, or the implicit duration risk borne by the Fed's burgeoning balance sheet
• slowly but surely they are coming to the inevitable conclusion (which our readers knew two years ago), that the Fed has no way out? Why?
• Further asset purchases would compromise the Fed's longer run profitability in two ways.
• First, because the securities have been purchased during a period of economic distress the yields on these securities are unusually low.
• In other words, at Dec. 31, 2013, a 4.5% interest rate (or, as we call it, the D-Rate) is where the Fed starts losing money.
• In other words, while QE4EVA may be unlimited in the eye of the beholding Chairman, it is very much limited by the amount of reserves pumped into the system, and the amount of cash that Ben will have to pay banks as interest on their excess reserves.

You may end up with the spectacle of the Fed having to bail itself out.  I'm sure Paul Krugman will have an explanation of why this is not a problem.

Update:

Another great article here:

The Real Reason Boomers Buy Bonds

Funny thing:  a lot of people are starting to believe the hype of the recovery.  There is no recovery.  The Fed is running out of ammo and the bond market is in a bubble.  Interest rates must rise, and with it goes the Fed!