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Fed Makes Noise Like Bazooka, Shoots Popgun

This is a syndicated repost courtesy of NY | Press Releases | Markets & Policy Implementation. To view original, click here. Reposted with permission.

Note from Lee: The only thing new in the Fed statement issued on Sunday was the $200 billion in MBS purchases, apparently over roughly 10 weeks. The $500 billion in Treasury purchases is not new, but it is a restatement and redistribution of maturities of the $80 billion per month that the Fed had been buying under Not QE. 

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New York Fed Statement:

Effective March 16, 2020, the Federal Open Market Committee directed the Open Market Trading Desk to increase over coming months the System Open Market Account holdings of Treasury securities and agency mortgage-backed securities by at least $500 billion and at least $200 billion, respectively.

Effective March 16, 2020, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) to increase over coming months the System Open Market Account (SOMA) holdings of Treasury securities and agency mortgage-backed securities (MBS) by at least $500 billion and at least $200 billion, respectively. The FOMC instructed the Desk to conduct these purchases at a pace appropriate to support the smooth functioning of markets for Treasury securities and agency MBS. The FOMC also directed the Desk to continue rolling over at auction all principal payments from Treasury securities holdings and to reinvest all principal payments from agency debt and agency MBS holdings in agency MBS. These plans replace the Desk’s previously communicated plans for reserve management and reinvestment purchases. In addition, the FOMC directed the Desk to continue conducting term and overnight repurchase (repo) agreement operations to ensure that the supply of reserves remains ample and to support the smooth functioning of short-term U.S. dollar funding markets.

Treasury purchases will be conducted across a range of maturities and security types to support smooth market functioning, with the intention that purchases will eventually be conducted roughly in line with the composition of Treasury securities outstanding. The Desk will begin purchases on Monday, March 16, 2020 with $40 billion in purchases of nominal coupon securities and Treasury Inflation-Protected Securities (TIPS). Consistent with the directive, the pace of purchases will be adjusted as appropriate to support the smooth functioning of the Treasury market. Separately, the Desk will continue to roll over at auction all principal payments from the Federal Reserve’s holdings of maturing Treasury securities.

Agency MBS purchases will generally be concentrated in recently produced coupons in 30-year and 15-year fixed rate agency MBS in the To-Be-Announced (TBA) market. The Desk will begin purchases on Monday, March 16, 2020. For the monthly period that runs through April 13, 2020, the Desk expects to purchase around $80 billion in agency MBS, which will include $23 billion in purchases to reinvest principal payments from agency debt and agency MBS expected in the month of March. Consistent with the directive, the pace of purchases will be adjusted as appropriate to support the smooth functioning of the agency MBS market.

Repo operations will continue to be offered for at least $175 billion in overnight repo each day, at least $45 billion in two-week term repo twice per week, and $500 billion in one-month term repo and $500 billion in three-month term repo each week.

Detailed information on these Desk operations can be found on the following pages:

Treasury Securities »
Agency Mortgage-Backed Securities »
Repurchase and Reverse Repurchase Agreements »

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