Fed's Total 2-10 Year UST Monetization Over Next 12 Months: $340 Billion
BofA's Jeffrey Rosenberg provides the breakdown of the total amount of securities that roll off (MBS, Agency and USTs) over the next 12 months: the total is $340 billion, including the $230 billion (and possibly more) in MBS. Alas, this means that on a straight line monthly basis (and the finally outcome will likely be far more jagged), there will be on average just under $30 billion a month in incremental 2-10 Year Treasury Purchases. As Joseph Abate said earlier, this is not nearly enough to be considered a new stimulus, and at best seeks to retain the status quo. What is notable is that BofA believes today's action should have been priced into the market. Judging by the kneejerk reaction in stocks and bonds, the reality is anything but.
From Jeffrey Rosenberg:
We would distinguish between an expansion of quantitative easing – QE2 – and an extension of QE1. The latter is more likely and in our view largely factored into credit market asset prices over the past few weeks. Extending the existing QE program means reinvesting paydowns and maturities. That simply postpones the implicit tightening of monetary policy from letting these paydowns roll off. Declining Treasury rates and the higher refinanceablity of the Fed’s mortgage holdings lead to a potential of $230bn of paydowns over the next twelve months on top of the already slated nearly $60 and $50 bn of Treasury and Agency debt maturing over the same time period. Left uninvested, that total amounts to $340bn, or nearly 20% of the portfolio purchases.