If this is not an accurate depiction of the Fed's operations here in QE2 since November 12th, I would request that they then detail what the heck they are really doing. How are they arriving at the price at which to buy the bonds? These would be some good questions for Rep. Ron Paul to ask if he ever gets his "audit the Fed" train rolling. I hope Rep. Paul has the sense to call Mike before any hearings!
The Fed is buying "scale down" and in effect, causing the selloff. They're doing this because they're fixated on quantity ($600 bln) as opposed to price (interest rate). I remember when I was a floor trader. I had clients in the oil business--big firms--who would sometimes want to protect a certain price. They'd give me an order that would be, "Buy 100 (crude), 'worst.'" That meant buy it up...aggressively. When Japan used to actively intervene in FX markets, they wouldn't scale down their dollar buying (or sell yen scale up), they'd buy dollars aggressively to put the USD/JPY exchange rate to a certain level. The Fed is not doing this. By signaling to the market that they will buy scale down, they are actually creating this selloff as nervous longs look to sell before the largest buyer lowers its bid again and as speculative shorts compete for a better price.