We addressed last week how the Fed isn’t able to keep morgtage rates under control – but now, the problem has an official name. It’s been christened the “Bernanke Conundrum”, which, while not to be confused with the Bourne Ultimatum, probably halfway opens up the door to have Bernanke played by Matt Damon in some action-packed Fed-chair biography in the future.

Fail:

The biggest price swings in Treasury bonds this year are undermining Federal Reserve Chairman Ben S. Bernanke’s efforts to cap consumer borrowing rates and pull the economy out of the worst recession in five decades.

The yield on the benchmark 10-year Treasury note rose to 3.90 percent last week as volatility in government bonds hit a six-month high, according to Merrill Lynch & Co.’s MOVE Index of options prices. Thirty-year fixed-rate mortgages jumped to 5.45 percent from as low as 4.85 percent in April, according to Bankrate.com in North Palm Beach, Florida. Costs for homebuyers are now higher than in December.

If you want to understand the machinations, it goes something like this. The Fed buys long term bonds, which drives their price up, and their effective interest rate down. This should theoretically drive mortgage interest rates down in tandem. And it probably would if this were a pretty closed system. However, a lot of people see the Fed injecting all these dollars into the system, and start thinking, “Hey! This is gonna cause inflation!” Which means nobody wants to buy like 10-year bonds  any more — expected inflation means you don’t want to hold bonds longer than the very short term. To wit:

Over the past month, money managers overseeing about $100 billion shortened the durations of their portfolios, according to Stone & McCarthy Research Associates in Skillman, New Jersey.

Duration, a reflection of how long the debt will be outstanding, dropped to 100.9 percent of benchmark indexes in the week ended June 2, the lowest in almost four months and down from 102 percent in the week ended May 5. The ratio was as high as 103.7 percent in the period ended March 10.

Still, the biggest concern traders have with this problem is whether or not they can go to the toilet (hint: at the least, take your BlackBerry with you):

The Fed probably won’t make any adjustments to the size of the Treasury purchase program before its next policy meeting on June 23-24, in part to avoid reinforcing perceptions policy is reacting to swings in yields, according to Jim Bianco, president of Chicago-based Bianco Research LLC.

“The Fed wants to operate in predictable ways,” Bianco said. “They are also trying to not just look arbitrary, which makes people think ‘I can’t ever go to the bathroom because there could be a press release that the Fed changed the buybacks.’ That’s been a real concern: ‘Wow, I just went to the bathroom and lost $2 million dollars.’”

No quick actions. Ben Bernanke: making it safe for traders everywhere to have a BM.