Friday, August 30, 2019

For Second Week In A Row, Fed Buys Treasuries (AKA, QE4!?!)

After 250 weeks without a purchase of Treasuries (since Oct. 2014), for the second week in a row, the Federal Reserve bought Treasuries.
The $14 billion in purchasing is in stark contrast to the zero purchases and selling during Quantitative Tightening.
When the Fed sells Treasuries, asset prices struggle, but when the Fed buys Treasuries, asset prices have surged.
Chart below shows the Fed's total Treasury holdings (red line) versus the weekly change in Treasuries (black columns) since 2014.  The QE taper is visible with the first dashed yellow line, the Quantitative Tightening and then the QT taper.  The Fed has begun a new period of Treasury purchasing...but for how long, who knows.
To put things in perspective, the chart below shows the Fed holdings of Treasuries (red line) and weekly change in Treasury buying (black columns) since 2003.  Clearly visible is the activist role the Fed has taken since the GFC...QE1, QE2, Operation Twist, QE3, Quantitative Tightening...and now???
Since March 2019, when the Fed rolled out its latest plan (HERE)...The Fed has ended its Treasury runoff sooner than communicated, cut rates as they said they would not, and is buying mid and long duration bonds while aggressively rolling off / selling off notes and bills...again, opposite to what they previously communicated or insinuated. From a duration perspective, the significant increases have come in the Fed's 7 to 10 year bond holdings (+$43 billion since May) and essentially zero roll-off / sell-off of long bonds going all the way back to 2016 (as detailed last week, HERE).
To highlight the changing nature of the Fed's balance sheet since the start of 2019, the chart below shows the weekly change in MBS (blue line), and change in Treasury holdings (red line).  The Fed has suggested it will continue rolling off MBS in exchange for T's indefinitely...definitely worth watching.
And just to highlight the immediate and incredible impact of the Federal Reserve purchasing of Treasuries on equity prices, the chart below is weekly changes in Treasury purchases (yellow columns) versus the Wilshire 5000 (red line), representing all publicly traded US equities.
Extra Credit - Weekly change of Fed holdings of MBS, Treasury, and Federal Funds rate (left axis) from June 2009 versus the Wilshire 5000 (right axis).  Ongoing rate cuts and rising Treasury holdings should be a pretty safe bet from here on out.
And just getting silly, I'll add in gold.  Make of that what you will?!?
Finally, for those unsure of what is going on, or "why the Fed has ultimately only got a knife at a gun fight", this is what this is all about globally, HERE, and domestically, HERE.

Data via St. Louis FRED.


  1. The Fed has already announced they will be re-investing the principal repayments from their MBS holdings into treasuries, so this is a non-event and not news to the market. The Fed is swapping their holdings of GSE mortgage bonds for treasuries which are more effective for conducting monetary policy operations.

    1. Since March 2019, when the Fed rolled out its plan...The Fed has ended its Treasury runoff sooner than they had communicated, cut rates as they said they would not, and is buying mid and long duration bonds while aggressively rolling off / selling off notes and bills...again opposite to what they previously communicated (insinuated). I think this is noteworthy!

  2. Can you post the fred link you used to get this data, thanks

  3. hehehehe if you look at Trump's twitter then everything becomes clear... He is literally bullying Powell into qe4.

  4. Hi, forgive my stupidity, whats your view on gold? i am little confused on gold coz seems different forces affect the fundemental: fear of recession, lower/ negative interest rate, strong USD.....

  5. Interesting to see you still blogging. Do you make the graphs yourself?

    Let me tell you what is happening on the ground of a major metro in America: everything normal, functioning, but we are all slowly being replaced by immigrants. The supply is infinite, and every single one of them has a family with kids. You have to see it to believe it. Every single nationality on earth, represented in large numbers (but the biggest being Mexico, China, and India) in a metro of soon to be 8 million people. It's split now 50/50, I'd say 4 million Americans, and 4 million immigrants, give or take.

    Labor willing to come to America: infinite.
    Ability of America to generate financial capital at will: infinite.

    I've resigned myself. I'm never going to see a change in this system in my lifetime. I'm 38, I'm absolutely convinced this is going to last the rest of my life. After me, the deluge.