The Fed scheduled $123 billion per day in Treasury and MBS purchases this week. That used to take a month under QE 1, 2, and 3, and 6 weeks under the more recent Not QE. Do you think that there might be some unintended consequences?
The Fed buys these securities in what are called Permanent Open Market Operations (POMO) conducted exclusively with the Fed’s handpicked Primary Dealers.
This is a fancy way of saying the Fed buys bonds from the dealers and pays them with cash the Fed just imagined into existence. The Fed deposits the new cash into the accounts of the dealers at the Fed. In this way the Fed injects $125 billion per day, that’s $625 billion in a week, into the banking system.
This is the hot money QE that Primary Dealers have historically used to acquire and mark up their inventories of securities of all kinds. That includes not just bonds, but also stocks, in particular.
They love stocks because they’re so easy to mark up and distribute to their institutional whales. AKA customers. AKA marks.
The Fed started Panic QE in early March. It wasn’t working. So the Fed just ramped up its buying until it worked. At $125 billion per day, more than a month’s worth of old QE cash infusions per day, pretty soon you’re talking real money. Ha Ha funny. Not.
Nobody knows what the unintended consequences will be. My UNSWAG (unscientific wild-assed guess)?
Here’s the schedule of Treasury Purchases the NY Fed posted for this week. The MBS schedule is below.
Schedule for Tuesday, March 24, 2020 – Friday, March 27, 2020 (all times ET)
- 9:30 – 9:50 am: Treasury Coupons 7 to 20 year sector, for around $6 billion
- 10:20 – 10:40 am: Treasury Coupons 4.5 to 7 year sector, for around $11 billion
- 11:00 – 11:20 am: Treasury Coupons 20 to 30 year sector, for around $5 billion
- 12:00 – 12:20 pm: Treasury Coupons 2.25 to 4.5 year sector, for around $17 billion
- 12:50 – 1:10 pm: TIPS 1 to 7.5 year sector (Wednesday and Friday), 7.5 to 30 year sector (Tuesday and Thursday) for around $7 billion each
- 1:40 – 2:00 pm: Treasury Coupons 20 to 30 year sector, for around $5 billion
- 2:30 – 2:50 pm: Treasury Coupons 0 to 2.25 year sector, for around $24 billion
The NY Fed also posted a schedule of MBS purchase operations indicating that it would buy up to $47 billion per day of MBS directly from Primary Dealers. These are the standard residential Fannie, Freddie, and Ginnie Mae MBS.
The Fed has said that it will also start buying Commercial MBS this week. That’s right. The Fed will buy worthless mortgages on all those empty shopping centers and currently or soon to be empty office buildings.
I wonder how that’s gonna work out.
Here are the results of today’s operations.
Treasuries:
OPERATION – RESULTS
Operation Date: 03/25/2020
Operation Type: Outright Coupon Purchase
Release Time: 02:30 PM
Close Time: 02:50 PM
Settlement Date: 03/26/2020
Maturity/Call Date Range: 03/31/2020 – 06/15/2022
Total Par Amt Accepted (mlns) : $24,000
Total Par Amt Submitted (mlns) : $40,562
OPERATION – RESULTS
Operation Date: 03/25/2020
Operation Type: Outright Coupon Purchase
Release Time: 01:39 PM
Close Time: 02:00 PM
Settlement Date: 03/26/2020
Maturity/Call Date Range: 05/15/2040 – 02/15/2050
Total Par Amt Accepted (mlns) : $5,000
Total Par Amt Submitted (mlns) : $8,309
OPERATION – RESULTS
Operation Date: 03/25/2020
Operation Type: Outright TIPS Purchase
Release Time: 12:50 PM
Close Time: 01:10 PM
Settlement Date: 03/26/2020
Maturity/Call Date Range: 04/15/2021 – 07/15/2027
Total Par Amt Accepted (mlns) : $5,600
Total Par Amt Submitted (mlns) : $7,328
OPERATION – RESULTS
Operation Date: 03/25/2020
Operation Type: Outright Coupon Purchase
Release Time: 12:00 PM
Close Time: 12:20 PM
Settlement Date: 03/26/2020
Maturity/Call Date Range: 06/30/2022 – 08/31/2024
Total Par Amt Accepted (mlns) : $14,348
Total Par Amt Submitted (mlns) : $23,186
OPERATION – RESULTS
Operation Date: 03/25/2020
Operation Type: Outright Coupon Purchase
Release Time: 11:00 AM
Close Time: 11:20 AM
Settlement Date: 03/26/2020
Maturity/Call Date Range: 05/15/2040 – 02/15/2050
Total Par Amt Accepted (mlns) : $5,000
Total Par Amt Submitted (mlns) : $8,954
OPERATION – RESULTS
Operation Date: 03/25/2020
Operation Type: Outright Coupon Purchase
Release Time: 10:20 AM
Close Time: 10:40 AM
Settlement Date: 03/26/2020
Maturity/Call Date Range: 09/30/2024 – 02/28/2027
Total Par Amt Accepted (mlns) : $11,000
Total Par Amt Submitted (mlns) : $20,937
OPERATION – RESULTS
Operation Date: 03/25/2020
Operation Type: Outright Coupon Purchase
Release Time: 09:29 AM
Close Time: 09:50 AM
Settlement Date: 03/26/2020
Maturity/Call Date Range: 05/15/2027 – 02/15/2040
Total Par Amt Accepted (mlns) : $6,000
Total Par Amt Submitted (mlns) : $11,163
MBS:OPERATION RESULTS
OPERATION RESULTS
Operation Date: March 25, 2020
Operation: Purchases
Operation Type: TBA
Auction Method: Multiple Price
Release Time: 01:59 PM
Close Time: 02:30 PM
Settlement Date: May 13, 2020 (May Class A)
Total Amt Accepted (million): $ 9,300 par
Total Amt Submitted (million): $ 16,983 par
Operation Date: March 25, 2020
Operation: Purchases
Operation Type: TBA
Auction Method: Multiple Price
Release Time: 01:00 PM
Close Time: 01:30 PM
Settlement Date: May 20, 2020 (May Class C)
Total Amt Accepted (million): $ 8,100 par
Total Amt Submitted (million): $ 11,637 par
OPERATION RESULTS
Operation Date: March 25, 2020
Operation: Purchases
Operation Type: TBA
Auction Method: Multiple Price
Release Time: 11:15 AM
Close Time: 11:45 AM
Settlement Date: May 13, 2020 (May Class A)
Total Amt Accepted (million): $ 9,300 par
Total Amt Submitted (million): $ 21,816 par
OPERATION RESULTS
Operation Date: March 25, 2020
Operation: Purchases
Operation Type: TBA
Auction Method: Multiple Price
Release Time: 10:15 AM
Close Time: 10:45 AM
Settlement Date: May 18, 2020 (May Class B)
Total Amt Accepted (million): $ 1,986 par
Total Amt Submitted (million): $ 4,510 par
OPERATION RESULTS
Operation Date: March 25, 2020
Operation: Purchases
Operation Type: TBA
Auction Method: Multiple Price
Release Time: 09:15 AM
Close Time: 09:45 AM
Settlement Date: March 30, 2020 (March Class A)
Total Amt Accepted (million): $ 11,190 par
Total Amt Submitted (million): $ 22,444 par
