From an initial $75 billion per day when the Fed announced the launch of Unlimited QE in mid-March, the US central bank first reduced its daily buying to $60 billion per day, then announced another 'taper' in its bond-buying program to $50 billion per day, which was followed by a reduction to 30 billion per day, which one month ago was again cut in half to $15 billion per day. Then, three weeks ago the Fed again slashed its daily POMO by another 33%, to $10BN per day, before cutting it to $8 billion two weeks ago, and again to $7 billion just last week. Fast forward to today when, in its latest just published schedule, the Fed unveiled that in the coming week it would purchase "only" $6BN per day, or a total of $30BN for the week.
And again, contrary to prior expectations that the Fed would only announce a monthly POMO total, the Fed is continuing the practice of incremental tapering, and providing a weekly preview of its purchasing operations, which in the coming week will amount to just $30BN in TSYs, down $5BN from the current week.
Here is the full schedule of Treasury purchases for the week ahead.
Note the growing variance between some days of the week, such as the $3.5BN in POMO on Monday vs the $9.5BN on Tuesday. In fact, looking at both historical and projected schedules, a curious pattern is observed, as Tuesday has emerged as the Fed's preferred day to do the week's largest POMO, which we are confident will soon be noticed by the market, which will then frontrun the outsized liquidity injection on "Turbo Tuesdays", creating a pattern where the S&P500 outperforms on the second day of the week.
Additionally, the Fed will also taper its MBS buying from $5 billion to $4.5 billion on average in MBS per day next week:
- Mon: $4.545BN from $5,083BN last Monday
- Tue: $4.433BN from $4.875BN last Tuesday
- Wed: $4.545BN from $5.083BN last Wednesday
- Thur: $4.433BN from $4.875BN last Thursday
- Fri: $4.545BN from $5.0833BN last Friday
The chart below summarizes all the Fed Treasury and MBS buying completed and scheduled since the relaunch of QE on March 13:
So, in aggregate, the Fed will buy a total of $52.5 billion of MBS/TSYs next week, down from $60 billion but still more on a weekly basis than the largest QE programs monthly totals before this crisis, if well below the $625 billion in purchases conducted in the week starting March 23, when the financial system was once again on the verge of collapse due to a decade of ruinous Fed policies... and only the Fed could bail it out.
Notably, unlike last week when the news of the latest POMO taper pushed yields to session highs, this time there was no similar reaction, with the 10Y trading at 0.64%, 3bps below where it was trading at exactly this time one week ago.
In any case, bonds are clearly not yet getting anxious about the pace of Fed QE tapering, which may be a mistake because as Goldman warns, the increase in sovereign bond supply is rapidly outpacing global QE (more on this shortly). Then again, if and when Powell cuts a few billion more, we may finally see a bond market tantrum as traders realize they have no choice but to force the Fed to keep buying bonds at the current pace, especially with some $3 trillion set to be sold this quarter, to fund 2020's total issuance which according to Guggenheim will be an absolutely insane $5+ trillion.