Federal Reserve Balance Sheet Update: Week Of October 6 - We Are Number 2!

Last week, during our regular scheduled Fed balance sheet update, we said "We believe that within one week the Fed will surpass Japan as the second largest holder of Treasurys, and China, the current top holder, in just over a month." Ww were right: as of Wednesday, the Fed disclosed it held $819.1 billion in US Treasurys. That excludes yesterday's $2.1 billion POMO which settled today, which does in fact bring the total to above the $821 billion held by Japan as of the end of July. With only $25 billion to go, and a rate of monetization of about $8 billion per week (and likely faster now that prepays are accelerating), we believe the Fed will be #1 by the mid-terms, just in time for the QE2 party to really blast things off. Aside from this there was little notable in the weekly balance sheet update: bank reserves increased by $16 billion in the past week, as Primary Dealers added to their purchasing capacity post the end of quarter window dressing.

  • Securities held outright: $2,052 billion, an increase of $7 billion from the week prior.
    • Total Treasury holdings increased from $812 billion to $819 billion, the reason for the increase being of course the continuing UST purchasing via QE Lite, soon to become QE2.
    • MBS holdings were completely unchanged at 1.079 trillion. The treasury purchases in the week were a catch up from the $13 trillion in prepays in the past week.
    • Agency holdings were also flat at $154 billion.
  • Net borrowings: declined by $3 billion at $50 billion.
  • Float, liquidity swaps, Maiden Lane and other assets: $188 billion, an increase of $1 billion. FX liquidity swaps are at $61 million as the same bank that is experiencing a USD funding crisis continues to have no EURIBOR/LIBOR acces. The "value" of Maiden Lane I was at $28.5 billion. Maiden Lane II was at $15.7 billion, Maiden Lane III at $22.8 billion while AIA Aurora was $26 billion. 
  • The monetary base was $1.943 trillion (more on M1 and M2 later)
  • Reserve balances with banks: $998 billion, an increase of $16 billion from the prior week.
  • Foreign holdings of USTs and MBS at a new all time high of $3.25 trillion, an increase of $15 billion W/W.