Federal Reserve Balance Sheet
Constant balance sheet aim fostered by shift to Treasuries
Today’s release of the Fed’s balance sheet reflects the recent FOMC statement declaring the central bank’s intention to reinvest principal of retiring mortgage-backed securities (MBS) into Treasury securities. According to the NY Fed, the central bank purchased $3.6bn and $2.5bn of Treasuries on 19 Aug and 17 Aug, respectively. Operations up to 18 Aug so far have not appreciably changed the size of the balance sheet, but the composition of assets and the maturity distribution are slowly changing. The largest change in maturity distribution occurred in 1- to 5-yr Treasuries, which posted a $9.6bn distribution increase. MBS posted the largest distribution decline of $6.4bn as the Fed attempts to retire mortgage debt, but long-dated over 10yr Treasuries indicated the second-largest distribution decline of $5bn. Since the announcement of the Fed’s strategy, the market reacted strongly across the yield curve, but the largest absolute change is in the 10yr Treasury. The Fed will purchase $18bn in Treasuries by 13 Sept, but in the next 12 months the market expectation is for a total of $250bn in purchases.
