Just as expected, the New York Fed disclosed that even as QE2 is being halted (briefly), QE Lite purchases of maturing securities will continue, across the Fed's 7 maturity segments: "At this time, the Desk
anticipates conducting one operation per month in each maturity sector." As we have calculated before the total amount of monthly "flow" purchases will be about $32 billion, and likely declining, as less and less MBS are prepaid to the Fed. In other words, the bulk of purchases will once again be at the belly, with the least amount dedicated to the long-end, followed only by the 1.5-2.5 year segment, which however, if Bill Gross is right, will see a surge in activity as soon as Operation Twist 2 is announced at this year's Jackson Hole meeting.
Statement Regarding Purchases of Treasury Securities
On June 22, 2011, the Federal Open Market Committee (FOMC) directed
the Open Market Trading Desk at the Federal Reserve Bank of New York
(the Desk) to complete purchases of $600 billion of longer-term Treasury
securities by the end of June. The FOMC also directed the Desk to
maintain its existing policy of reinvesting principal payments on all
domestic securities in the System Open Market Account in Treasury
securities in order to maintain the total face value of domestic
securities at approximately $2.6 trillion.
Under the existing
reinvestment policy, principal payments from agency debt and agency
mortgage-backed securities (MBS) are reinvested in longer-term Treasury
securities. In implementing this policy going forward, the Desk will
follow operating practices similar to those established during the $600
billion Treasury purchase program.
Purchases will be allocated
across maturities according to a distribution that is nearly identical
to that executed under the Treasury purchase program. The only change
to the distribution is that the two maturity sectors beyond 10 years
from the earlier purchase program will be combined into a single
maturity sector of 10 to 30 years in order to achieve greater
operational simplicity. Specifically, the Desk plans to distribute
purchases across seven maturity sectors based on the following
on-the-run 7-year note will be considered part of the 5½- to 7-year
sector, and the on-the-run 10-year note will be considered part of the
7- to 10-year sector.
**TIPS weights are based on unadjusted par amounts.
and frequency of operations will be reduced to levels commensurate with
agency debt and MBS principal payments. At this time, the Desk
anticipates conducting one operation per month in each maturity sector.
Desk will continue to release a tentative schedule of purchase
operations on or around the eighth business day of each month, with each
schedule providing information on the operations expected to take place
through the middle of the following month. The next schedule will be
released on July 13, 2011.