FED to expand balance sheet.

[Pauls' Revere]

https://www.msn.com/en-us/money/mark...cid=spartandhp

Powell said the Fed is about to embark on more permanent operations to make sure the system has enough reserves and the market volatility events are controlled.
"This volatility can impede the effective implementation of monetary policy, and we are addressing it," Powell said in prepared remarks. "Indeed, my colleagues and I will soon announce measures to add to the supply of reserves over time."

President Donald Trump sharply criticized the balance sheet reduction, calling it "quantitative tightening" and charging that it was slowing economic growth.
Powell said the Fed is settling into an "ample reserves" regime and now sees that it is around the level banks need.
"As we indicated in our March statement on balance sheet normalization, at some point, we will begin increasing our securities holdings to maintain an appropriate level of reserves," he said. "That time is now upon us."

[devil21]

Fed is soaking up Treasuries being dumped by big holders.

[Zippyjuan]

Fed is soaking up Treasuries being dumped by big holders.

Who is dumping? (if demand for Treasuries is weak, interest rates on them should be rising).

[devil21]

Who is dumping? (if demand for Treasuries is weak, interest rates on them should be rising).

The better question is who isn't? I haven't run the math but since repos are now pushed out into November (and probably will be again beyond November), at around $40B-$50B per business day, on-the-record- we're looking at numbers in the trillions range. Remember when I posted recently that Chinese were putting up Treasuries as collateral against cash bank loans? Yeah, probably something to do with that...

"Demand" and rates is meaningless since PDs soak up what isn't selling and repo operations like these are designed to ensure rates aren't affecting by massive sell orders hitting the markets unprepared.

[Zippyjuan]

The better question is who isn't? I haven't run the math but since repos are now pushed out into November (and probably will be again beyond November), at around $40B-$50B per business day, on-the-record- we're looking at numbers in the trillions range. Remember when I posted recently that Chinese were putting up Treasuries as collateral against cash bank loans? Yeah, probably something to do with that...

"Demand" and rates is meaningless since PDs soak up what isn't selling and repo operations like these are designed to ensure rates aren't affecting by massive sell orders hitting the markets unprepared.

The repo market is short term- overnight. The Fed trading treasuries for cash for just one day. If they lent out $30 billion one day, it had to be paid back the next day. If they lend out $30 billion the next day, that is not $60 billion outstanding but $30 billion outstanding. There aren't "trillions" out there in repo lending. Here is a link to an interactive chart showing outstanding balances: https://fred.stlouisfed.org/series/RRPONTSYD

It currently shows $1.4 billion outstanding as of October 9th.

This series is constructed as the aggregated daily amount value of the RRP transactions reported by the New York Fed as part of the Temporary Open Market Operations.

Temporary open market operations involve short-term repurchase and reverse repurchase agreements that are designed to temporarily add or drain reserves available to the banking system and influence day-to-day trading in the federal funds market.

A reverse repurchase agreement (known as reverse repo or RRP) is a transaction in which the New York Fed under the authorization and direction of the Federal Open Market Committee sells a security to an eligible counterparty with an agreement to repurchase that same security at a specified price at a specific time in the future. For these transactions, eligible securities are U.S. Treasury instruments, federal agency debt and the mortgage-backed securities issued or fully guaranteed by federal agencies.
For more information, see https://www.newyorkfed.org/markets/rrp_faq.html

https://apps.newyorkfed.org/markets/autorates/temp

Repo and Reverse Repo Operations

The New York Fed conducts overnight reverse repo operations each day as a means to help keep the federal funds rate in the target range set by the Federal Open Market Committee (FOMC). Operation results include all repo and reverse repo operations conducted, including small value exercises.

Here is the announcement of one:

The following operation has just been announced:

Note: This is a reverse repo operation

Deal Date: Thursday, October 10, 2019
Delivery Date: Thursday, October 10, 2019
Maturity Date: Friday, October 11, 2019
Type of Operation: Reverse Repo
Auction Method: Fixed Rate/Single Price (TBD)
Settlement: Same Day
Term of Operation - Calendar Days : 1 Day
Term of Operation - Business Days : 1 Day
Operation Close Time: 01:15 PM

That one was for $1 billion and due to be paid back the next day.

This one was a bit longer at two weeks:

Deal Date: Thursday, October 10, 2019
Delivery Date: Thursday, October 10, 2019
Maturity Date: Thursday, October 24, 2019
Type of Operation: Repo
Auction Method: Multiple Price
Settlement: Same Day
Term of Operation - Calendar Days : 14 Days
Term of Operation - Business Days : 9 Days
Operation Close Time: 08:15 AM

That one was $45 billion. There are $22 trillion in US Treasuries out there. No indications of anybody "dumping large amounts" of them.

[devil21]

So you say it's short-term overnight but then post an example of it not being short-term overnight. And the short-term overnight only applies if the borrower actually pays the loan back the next day. How do we know they are paying it back? Or is it just coincidence that the balance sheet is expanding again as repos take off AND Powell says "it's not QE". If he's telling the truth that it's not QE, it means the Fed is taking Treasuries back onto the balance sheet but not buying new issues in the open market. It deduces to the Fed taking Treasuries from current holders and not returning them, hence balance sheet expansion but not "QE".

[Zippyjuan]

So you say it's short-term overnight but then post an example of it not being short-term overnight. And the short-term overnight only applies if the borrower actually pays the loan back the next day. How do we know they are paying it back? Or is it just coincidence that the balance sheet is expanding again as repos take off AND Powell says "it's not QE". If he's telling the truth that it's not QE, it means the Fed is taking Treasuries back onto the balance sheet but not buying new issues in the open market. It deduces to the Fed taking Treasuries from current holders and not returning them, hence balance sheet expansion but not "QE".

The Treasury notes are collateral. If they don't pay, they lose their notes and could be fined or banned from participating in Fed operations- lose their "favored dealers" status.

Or is it just coincidence that the balance sheet is expanding again as repos take off AND Powell says "it's not QE".

How much has their balance sheet expanded? By $trillions? Try this link: https://fred.stlouisfed.org/series/WALCL

[devil21]

The Treasury notes are collateral. If they don't pay, they lose their notes and could be fined or banned from participating in Fed operations- lose their "favored dealers" status.

Could. Depends on which bank it is. Maybe someone is using JPM as an intermediary? It's not like JPM would ever be fined or lose participation if they were playing intermediary between the Fed and the Chinese, for example. Taking the Chinese Ts for loans from JPM, then JPM passes them back to the Fed via repos. Just a thought...

(Oh and suddenly there's a phase of a "trade deal" with the Chinese announced in the same time frame. Interesting...)

How much has their balance sheet expanded? By $trillions? Try this link: https://fred.stlouisfed.org/series/WALCL

Dunno, don't care at the moment. Let's see what it amounts to in a month or longer.

[Zippyjuan]

Could. Depends on which bank it is. Maybe someone is using JPM as an intermediary? It's not like JPM would ever be fined or lose participation if they were playing intermediary between the Fed and the Chinese, for example. Taking the Chinese Ts for loans from JPM, then JPM passes them back to the Fed via repos. Just a thought...

(Oh and suddenly there's a phase of a "trade deal" with the Chinese announced in the same time frame. Interesting...)



Dunno, don't care at the moment. Let's see what it amounts to in a month or longer.

Trump calling it a trade deal ("Phase One" of a deal)- China says there is no deal.

Taking the Chinese Ts for loans from JPM, then JPM passes them back to the Fed via repos. Just a thought...

With just $2.95 billion listed today as outstanding Repos, if it is China, they aren't borrowing that much this way (neither is anybody else).

https://fred.stlouisfed.org/series/RRPONTSYD

[Madison320]

Who is dumping? (if demand for Treasuries is weak, interest rates on them should be rising).

From what I understand it's the short term loans that the Fed is monetizing.

Anyway you're missing the point. Interest rates are not rising BECAUSE the Fed is buying them or threatening to.

Either way the Fed's balance sheet is rising and the Fed's rate is falling.

Gosh. Who could've seen that coming? Besides Ron Paul, Peter Schiff and a few members in this forum.

[Zippyjuan]

From what I understand it's the short term loans that the Fed is monetizing.

Anyway you're missing the point. Interest rates are not rising BECAUSE the Fed is buying them or threatening to.

Either way the Fed's balance sheet is rising and the Fed's rate is falling.

Gosh. Who could've seen that coming? Besides Ron Paul, Peter Schiff and a few members in this forum.

The Fed isn't buying that much (they announced they will actually buy $60 billion worth)- meanwhile the government is issuing $1 trillion more a year

[devil21]

Perhaps the word "trade" being used doesn't mean what we're inclined to think it does, as in plastic stuff on Walmart shelves. Lots of things can be traded. Like Treasuries for cash. That fits the banker MO of applying a meaning to a word that is different than the common meaning and not doing anything to alleviate the misconception.

Seems to me that the only logical explanation is that the Fed is repo'ing Treasuries from current holders, such the Chinese. It's either that or a bank(s) are insolvent and dumping Treasuries to raise cash. I'm sticking with foreign/institutional holders dumping.

[Madison320]

The Fed isn't buying that much (they announced they will actually buy $60 billion worth)- meanwhile the government is issuing $1 trillion more a year

You're comparing apples to oranges. The proper comparison is to compare how much the Fed is printing (60 billion a month) with the grand total that the Fed has printed (4 trillion).

If they continue at that pace they'll go from 4 trillion to over 4.7 trillion in a year. That a pretty significant increase.

[devil21]

The Fed quietly announced that repos will now run into 1Q20. They didn't even wait a week after saying repos until November to push it out even further.