Primary Dealers Scramble To Sell All Recently Auctioned Off Treasurys To Fed. The churning is reaching a frenzy. Is the Sh..about to hit the fan.

Primary Dealers know all about fight or flight. And boy are the flighting. After yesterday more than half of the POMO consisted of one single CUSIP, with the bond auctioned off just a week earlier accounting for well over 50% of the entire operation, today the New York Fed, following our ridicule that Brian Sack allows such bond flipping it is virtually borderline criminal churning decided to add the most recently auctioned off CUSIP, the PLP8s of 12/15/2013 on the exclusion list, meaning PDs were stuck with their holdings in the name. The Fed, however, did not prevent any of of the previously auctioned off securities from being monetized. And what a selling frenzy those were: of today's $7.2 billion POMO, 75% of the operation consisted of the monetization of the two most recently permitted securities: the 3 Years auctioned off in November (PU8), $3.4 billion worth, and October (PB0), for $2 billion. This is a stunning rush to get the hell out of dodge, and confirms that Primary Dealers can not wait to sell every single piece of paper purchased recently via the PD auction take down. What this also means, is that any pretense the Fed had that it was not monetizing debt directly is now gone. Brian Sack should just expand the SOMA allocation per auction, and add the Fed as a legitimate 4th bidder party: after all nobody is fooled by the Treasury->Primary Dealer-> Fed charade any more. And at least that way, the PDs will stop collecting commissions on arbitrary bid/ask spreads.

The chart below explains everything.