Today we get a brief glimpse of what will happen to the Fed's balance sheet when rates surge. In the span of one day, the Fed took an $8 billion unrealized loss on its $1.07 trillion in Bonds, TIPS and Agencies. It also likely experienced a comparable loss on its MBS portfolio. It's a good thing the Fed has $57 billion in capital accounts. Which means 4 days like today, and all of the Fed's equity buffer is wiped out. What happens next is up to congress.

The question that Zero Hedge has long been posing, namely why the Fed, which is now the world's biggest and most leveraged hedge fund (well second most, after the ECB) has no interest rate hedges on its books whatsoever, remains as valid today as ever. And with it being in print, Ben Bernanke will not have the fallback option of saying nobody had ever suggested the idea...

h/t John Lohman