The Fed bought $1.73 billion in Treasury coupons from Primary Dealers today. The trade settles Tuesday.
There were no MBS settlements. All MBS purchases are forward contracts which the Fed settles during the third week of each month. The next settlement week begins September 14.
The Fed buys the paper from Primary Dealers. The dealers act as middlemen or straw men, acting on behalf of the Fed. The dealers purchase newly issued bills notes or bonds from the US Treasury. They in turn sell that paper to the Fed with a markup. That markup is their skim.
The money that the Fed deposits in payment is then their cash to use for trading whatever they want. Usually that includes a big slug of equities, in addition to Treasuries and whatever else they make markets in.
This arrangement where the Primary Dealers act as middle men, enables the Fed to claim that it is not monetizing the Federal debt. But that’s a sham. And it’s out in the open and possible to track. The Fed publishes its purchase schedules in advance.
Likewise the Treasury Borrowing Advisory Committee (TBAC) publishes a quarterly estimate of US Treasury debt issuance by date and specific issue, including bonds, notes, and bills, 20 weeks in advance at the beginning of the second month of each calendar quarter.
There were no MBS purchase settlements Friday. MBS purchases are forward contracts which the Fed settles during the third week of each month with settlements on three separate days over the course of one week. The last settlement for August was on Thursday, August 20.
The Fed deposits cash into the accounts of Primary Dealers in payment for the prior purchases. This tends to support bullish moves in the financial markets around those settlements. Thursday’s settlements totaled $26.4 billion.
I track, chart, and analyze this data, including the schedule for coming weeks, and report its likely impacts on the short to intermediate term stock market direction. You can get these reports at Lee Adler’s Liquidity Trader, with updates throughout the month. 90 day risk free trial for new subscribers.
The current report covers changes in the Fed’s balance sheet. The next QE update will be posted Tuesday.
