Is the Federal Reserve monetizing government debt before it's issued?

Zero Hedge, an American financial analysis blog, broke a story earlier this morning that suggests a troubling trend is emerging in the U.S. Federal Reserve's policy of participating actively in the Treasury bond market. According to the blog's analysis of auction announcements from both the Fed and the Treasury Department, it appears that the American central bank has purchased a U.S. government bond that will not be issued until the next day. 

The 30-year paper, known as CUSIP 912810QZ4, was first referenced in a press release from the Fed. The auction took place on March 13 at 10:15 a.m., which settled for $1.464 billion in proceeds from the central bank. 

Yet according to a separate announcement from the Treasury's Bureau of the Public Debt, a bond auction is set for March 14 for a debt security with the same CUSIP number. Currently, it is being offered for a total value of $13 billion, with an interest rate of roughly 3 percent. 

What does this mean? Zero Hedge concluded that the Fed is pre-monetizing the U.S. government's debt, which is a significant escalation from its regular current policy of monetizing federal borrowing as it is issued. 

Actions like this call into question the assurances given to Congress and the American public by current Fed Chairman Ben Bernanke, who in 2010 stated firmly that the central bank was not going to finance U.S. debt through its operations.

Due to the fact that global financial markets are being influenced by actions from the Fed and other central banks, investors should tread carefully. Those with risky portfolios may want to reassess their holdings as the year continues to make sure that it can perform well in this environment. Alternative forms of income, like cash flow real estate, are a great way to hedge against potential economic losses.