But long-term Treasury yields have surged, much to the dismay of our Wall Street Crybabies.
Through Wolf Richter for LOUP STREET.
The Fed has shut down or put on ice almost all of the alphabet soup of bailout programs designed to support markets during their crisis a year ago, including special purpose vehicles (SPVs) that bought corporate bonds, corporate bond ETFs, commercial mortgages. Backed Securities, Asset Backed Securities, Municipal Bonds, etc. His rests vanished last summer. And foreign central bank dollar swaps are almost gone.
What the Fed always buys are large amounts of residential Treasury and MBS securities, although no one can understand why the Fed is still buying them, given the insane Everything Mania in the markets.
But for the week, the total assets on the Fed Weekly balance sheet through Wednesday, March 31, fell $ 31 billion from the previous week’s record high to $ 7.69 trillion. In the last 13 months of this money printing miracle show, the Fed added $ 3.5 trillion in assets to its balance sheet:
One of the goals of QE is to lower long-term interest rates and lower long-term mortgage rates. But long-term Treasury yields started to rise last summer. The 10-year Treasury has more than tripled since then and closed today at 1.72%. Mortgage rates started to rise in early January. Bond prices fall as yields rise, and Wall Street whiners want the Fed to do something about these rising long-term yields and the bloodbath they’ve created in Treasury prices. long term and high quality corporate bonds.
But instead, the Fed has said in monotonous consistency that rising long-term yields despite $ 120 billion of quantitative easing per month is a welcome sign of rising inflation expectations and an economy. growing :
To put this $ 30 billion drop this week into perspective, here’s the detailed view of the Fed’s total assets since early 2020:
Treasury purchases are purring, $ 4.94 trillion.
After the initial explosion a year ago, the Fed continued to add about $ 80 billion per month in treasury securities to its balance sheet, bringing the total 13-month addition to $ 2.470 billion, which more than doubled its Treasury holdings during the period to $ 4.94. one thousand billion:
MBS zigzagging higher, but for the week it drops $ 50 billion to $ 2.18 trillion.
Holders of mortgage-backed securities receive principal payments that are passed on as the underlying mortgages are repaid or repaid. The Fed buys MBS on the “To Be Announced” (TBA) market to replace principal pass-through payments and increase its balance. But transactions in the TBA market take months to settle, and time differences create zig-zags.
The pace of increase in the balance has picked up a little this year, as principal payments transferred have slowed due to the slowdown in mortgage refis caused by the rise in mortgage rates.
CMBS Rescue Program Stopped.
This $ 2.18 trillion in MBS includes the Fed’s purchases of commercial mortgage-backed securities, a program it announced during the crisis. It was going to be a huge program, according to the hype. But in reality, he only bought $ 10 billion from CMBS, mostly in April and May of last year. This program is now closed and the Fed has stopped buying CMBS since last week. The principal payments the Fed receives will reduce the balance in the future.
Pensions (buyback agreements) remain at zero:
The Fed continues to offer repos, but after raising the bid rate last June, making its repos unattractive, there have been no takers. The remaining repos have expired and were unwound last summer:
Central bank liquidity swaps are being phased out.
The Fed offered dollars to 14 other central banks in exchange for their currencies. Almost all of these “central bank liquidity swaps” have expired and been unwound. Only $ 2.5 billion remains, split between the ECB, Swiss National Bank and Bank of Mexico, up from $ 450 billion at the peak:
All SPVs except PPP on-ice facilities, at $ 144 billion
The Fed created these Special Purpose Vehicles (SPVs) as legal entities that can buy assets that the Fed is not allowed to buy otherwise, such as corporate bonds, junk bonds, bond ETFs. , including junk bond ETFs, auto loan backed securities, municipal bonds, corporate paper, and more. The Fed lent to the SPVs, and the Treasury Department provided equity financing that would take the first loss.
These SPVs are now blocked and have expired, with the exception of the PPP liquidity facility (red), which the Fed extended by three months until June. It buys PPP loans from banks and is the only growing SPV. All others are either frozen or falling:
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