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Federal Reserve Balance Sheet Update: Week Of October 27: A Look At Fed Asset Durations

Submitted by Tyler Durden on 10/29/2010 01:47 -0400

As of October 27, the Fed's balance sheet was $2.3 trillion, of which
the $837 billion in Treasury debt is of course a fresh all time record, soon to be eclipsed by the tens of billions added weekly as per QE2. There is roughly $13 billion left under the current POMO program ending in the second week of November, which by then will be supplemented by a new and improved almost daily POMO. In the past
week, bank excess reserves increased by $16 billion after declining by $34 billion the week prior: total reserves stood
at $1,008 billion, up from $993 billion the week before. And once again foreign holdings of agency/MBS debt dropped to a new 3
year low, dumping over $100 billion agencies in the Fed's custodial account
over the past two months. Last, we take a look at the one topic that will soon be the most talked about subject by every pundit in the econosphere: the duration distribution of Fed holdings.

Summary balance sheet breakdown:

Securities
held outright: $2,039 billion, $10 billion less than the week prior.
- Total
  Treasury holdings increased
  from $832 billion to $838 billion.
- MBS
  holdings declined from $1.066 trillion to $1.051 trillion. This is a sizable drop of $15 billion in just one week: are MBS buy backs accelerating? If so, this confirms our expectations that lower rates will means greater buybacks, and greater capacity for UST purchases as part of QE Lite alone, let alone QE2.
- Agency holdings declined by $1 billion to $1510billion.
Net
borrowings: flat at
$49 billion.
Float,
liquidity
swaps, Maiden Lane and other assets: $191
billion, slight increase W/W. FX liquidity swaps were at $60, as the bank which had pulled $500 million in USD via the swap line no longer needs it and just one bank is using the Fed's dollars, the same one that has been doing so for 3 months now. The value of Maiden
Lane I was at $28.5
billion. Maiden Lane II was at $16.5 billion, Maiden Lane III at $23.5: all increasing markedly even though the Fed is now petitioning to putback loans to Bank of America, meaning many of the loans could very well be worthless: perfect time to boost their "value."
The monetary base was $1.964 trillion
Reserve
balances with banks: $1,008 trillion, as noted above an increase of $16
billion from the prior week.
Foreign holdings of USTs and MBS at a new all time high of $3.30 trillion, an increase of $19 billion W/W, due to an incrase in UST custodial holdings of $21 billion.

And a quick look at a topic that will soon be all the rage, the second the media picks it up: the maturity distribution of the Fed's holdings. Look for this unimodal distribution to shift ever more to the left, as the Fed is forced to buy increasingly greater billions of shorter duration, thus locking itself in an endless series of QE refinancing QEs, as Bruce Krasting point out earlier.

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Fri, 10/29/2010 - 02:04 | 685235 Nihilarian

I'm quite certain that even Keynesianism dictates that long term sustainable GDP growth is a function of savings and investments. The latter is predicated on the former, which is predicated on an environment with higher interest rates (which would exist if it wasn't for the Fed's idiocy).

Fri, 10/29/2010 - 02:03 | 685236 AUD

$1 trillion in MBS with duration over 10 years, or in other words, perpetual junk.

Yet the USD is still 'money good'? Foreign holdings of UST's at another record high. Unbelieveable, yet actual reality.

Fri, 10/29/2010 - 02:31 | 685256 BS Footprint

QE2 = Titanic 2011?

Fri, 10/29/2010 - 02:57 | 685263 Bear

More like 2012 ... more precisely 2:20 am April 15, 2012 ... one hundred years after the sinking

Fri, 10/29/2010 - 02:43 | 685260 Kiwi Pete

So what would be the real-world effect if all that MBS holding was revalued to zero due to the fraud/lost note issues? A regular company would be bankrupt. Can the Fed go bust? What would happen if it did?

Fri, 10/29/2010 - 04:07 | 685275 AUD

Revalued to zero in terms of what?

In terms of gold it would be hyperinflation but so far the bid for dollars, in gold, continues.

Fri, 10/29/2010 - 07:26 | 685325 ZeroPower

All CMBS are already at 0, and the MBS of any value left (perhaps a few cents on the $) are rarely being traded. Give it a few more months, 0 as well.

Fri, 10/29/2010 - 04:42 | 685282 bond trader

ls there no way to remove bernanke other than his term expiring?

Fri, 10/29/2010 - 07:21 | 685322 abducens

After the elections the Fed will stop buying. Will they ever sell?

Fri, 10/29/2010 - 09:23 | 685504 firstdivision

Hey Ben, how about another reverse repo? That was fun the other week, no?

Fri, 10/29/2010 - 10:17 | 685625 asteroids

If the FDIC now has the authority to wind down TBTF banks, does that include the FED?

Fri, 10/29/2010 - 10:31 | 685664 Whatta

...I am so confused here...

so, the FED creates money out of thin air and "Buys" UST's. The UST then is supposed to take "real" taxpayer US$'s and give them to the FED to pay them back, and then the FED gives those real dollars to the banksters for being bad. Is that how it works?

Damn, I need to see about getting me my own FED, or at least a failing bank.

Fri, 10/29/2010 - 13:30 | 686208 Movermike

Reserve Bank credit was about F$25 billion in 1961. It was about F$290 billion in 1991. Am I correct that it is about $1.964 trillion today?

Fri, 10/29/2010 - 16:16 | 686684 californiagirl

I'd rather be the FED holding and replacing the short-term USTs, than the taxpayers responsible for paying the interest on the constantly rolling over and ever increasing national debt when interest rates start to increase.

Fri, 10/29/2010 - 17:03 | 686793 Cheater5

What do you think is going to happen when Ron Paul audits the fed and marks its portfolio to market. 10+ duration. If you told me that 10 years ago I would have told you that you were crazy. Can you use the words "DV01" and "shitstorm" in the same sentance?

I cant wait for this to go down so someone can finally shove the shit that the fed and Tiny Tim bought down their throats. Here is another phrase for you two year old "PERP WALK".

Fri, 10/29/2010 - 23:40 | 687411 californiagirl

All that MBS crap the FED purchased in QE1 is Fannie/Freddie. If you recall, last December 24th, Geithner gave all of us taxpayers a Christmas present while we were not paying attention. He uncapped the U.S. taxpayer-backed credit line to Fannie/Freddie, making it unlimited. Therefore, should Fannie/Freddie exerience any cashflow difficulties as a result of defaults, foreclosure moratoriums, or other problems, Timmy will make sure the taxpayers "lend" money to Fannie/Freddie so that they can continue to pay the FED and the FED can continue to pay the bankers their above-market interest rates for the $1+ Trillion of no-risk bank reserves that the banking industry is paid to keep it on deposit at the FED rather than loaning it out to American families and businesses. And all the while the Administration keeps reassuring the American people that it is doing everything it can to get the banks to lend again. Of course, if the banks take that money out of the Fed and start lending it again and the $1+ Trillion starts flowing and multiplying through our fractional reserve banking system, then Hello, Weimar Republic! Frankly, I would have preferred a lump of coal in my stocking from Timmy. At least I can use it in my BBQ.

If I were to audit the FED, the first thing I would want to do is identify all the parties from whom the FED puchased the Fannie/Freddie MBS. Then I would compare that list to the banks that are receiving interest payments on Excess Reserve deposits at the FED. I wonder how many might be foreign? I also wonder if the interest is being paid to many of the same bankers from whom the FED purchased the Fannie/Freddie MBS from in the first place? If there is a high correlation, then what you have is a back-door bailout. The banks have successfully received a $1 Trillion 100% taxpayer funded bailout with the help of the FED and Treasury, managing to swap highly impaired subprime MBS for risk-free FED deposits earning above market interest, elegantly circumventing Congress and the Constitution (can you imagine the reaction if Ben/Tim asked Congress for another $1 Trillion after TARP, TALF, PPIP, etc?), and duping the taxpayers and MSM in the process. The Administration has the added benefit of being able to spin the convoluted actions as good for the American people because they created or saved more than a million jobs.

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Federal Reserve Balance Sheet Update: Week Of October 27: A Look At Fed Asset Durations

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