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.