The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Federal Reserve Asset Purchases: The Pandemic Response and Considerations Ahead Lorie Logan March 2, 2022 The views presented here are those of the author and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System Figure 1: Cumulative Net Purchases of Treasury Securities and Agency MBS Treasury Securities $ Billions 6,000 June 2020 FOMC 5,000 September 2020 FOMC December 2020 FOMC Aug-20 Nov-20 Agency MBS November 2021 FOMC December 2021 FOMC 4,000 3,000 2,000 1,000 0 Feb-20 May-20 Feb-21 May-21 Aug-21 Nov-21 Feb-22 Note: At its June 2020 meeting, the FOMC transitioned the objective of its purchases from supporting to sustaining smooth market functioning. At its September 2020 meeting, the FOMC expanded its asset purchase objective to include helping to foster accommodative financial conditions. In December 2020, the FOMC stated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month in order to help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses. At its November 2021 meeting, the FOMC announced that it would begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency MBS. At its December 2021 meeting, the FOMC announced that it would reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency MBS. Source: Federal Reserve Bank of New York 2 Figure 2: Treasury Market Functioning (a) Daily Average Treasury Bid-Ask Spreads $ per $100 3.0 I. II. III. IV. 2.5 2.0 $ Billions Total Daily Treasury Purchases (RHS) 100 0-5 year (LHS) 80 60 10-30 year (LHS) 40 1.0 20 0.5 0.0 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 1,200 I. II. III. IV. Dec-20 0 Note: Daily average Treasury bid-ask spreads are calculated as the average difference between indicative bid and ask price quotes for all nominal coupon securities in a given maturity range between 9:00 am and 9:05am. I. Fed funds rate cut (50 bps) II. Fed funds rate cut (100 bps) and initiated purchases to support market functioning III. Initiated purchases to support smooth market functioning "in the amounts needed“ IV. At its June 2020 meeting, the FOMC transitioned the objective of its purchases from supporting to sustaining smooth market functioning, and stated it would conduct purchases “at least at the current pace.” Source: Federal Reserve Bank of New York $ Millions 2-Year (LHS) 35 5-Year (LHS) 1,000 30 10-Year (LHS) 25 30-Year (RHS) 800 5-10 year (LHS) 1.5 $ Millions (b) Daily Treasury Market Depth for On-the-Run Securities 20 600 15 400 10 200 0 Feb-20 5 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 0 Note: Daily Treasury market depth is calculated as the average total par amount of executable orders that exist at the top 3 price levels in the central limit order book over the U.S. trading day. I. Fed funds rate cut (50 bps) II. Fed funds rate cut (100 bps) and initiated purchases to support market functioning III. Initiated purchases to support smooth market functioning "in the amounts needed“ IV. At its June 2020 meeting, the FOMC transitioned the objective of its purchases from supporting to sustaining smooth market functioning, and stated it would conduct purchases “at least at the current pace.” Source: Federal Reserve Bank of New York, Brokertec 3 Figure 3: Agency MBS Market Functioning Agency MBS Effective Bid-Ask Spread $ Billions Ticks 8 I. II. III. Total Daily Agency MBS Purchases (RHS) IV. Effective Bid-Ask Spread (LHS) 7 48 42 6 36 5 30 4 24 3 18 2 12 1 6 0 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 0 Note: A tick is 1/32 of $1. Effective bid-ask spread shown is calculated as 2-day moving average of volume-weighted realized bid-ask spread across 15- and 30-year 2.0%-7.0% to-be-announced MBS. Effective bid-ask spread equals daily average sell price minus buy price of dealer-to-customer transactions. I. Fed funds rate cut (50 bps) II. Fed funds rate cut (100 bps) and initiated purchases to support market functioning III. Initiated purchases to support smooth market functioning "in the amounts needed“ IV. At its June 2020 meeting, the FOMC transitioned the objective of its purchases from supporting to sustaining smooth market functioning, and stated it would conduct purchases “at least at the current pace.” Source: Federal Reserve Bank of New York, Financial Industry Regulatory Authority (FINRA), Trade Reporting and Compliance Engine (TRACE). 4 Figure 4: Total Daily Asset Purchases Treasury Securities $ Billions I. 120 II. Agency MBS IV. III. 100 80 60 40 20 0 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Note: I. Fed funds rate cut (50 bps) II. Fed funds rate cut (100 bps) and initiated purchases to support market functioning III. Initiated purchases to support smooth market functioning "in the amounts needed“ IV. At its June 2020 meeting, the FOMC transitioned the objective of its purchases from supporting to sustaining smooth market functioning, and stated it would conduct purchases “at least at the current pace.” Source: Federal Reserve Bank of New York 5 Figure 5: Comparison of SOMA Portfolio ($ Trillions) Total Balance Sheet SOMA Portfolio Percent Nominal GDP SOMA Treasury End of LSAP 3 Current Nov 2014 $ 4.5 Feb 2022 $ 8.9 $ 4.2 24% $ 2.5 $ 8.5 35% $ 5.7 Percent of SOMA Holdings 58% 68% Percent <3 years to Maturity 16% 45% Weighted Average Maturity (in years) 9.7 7.6 $ 1.7 $ 2.7 SOMA Agency MBS* Percent of SOMA Holdings 41% 32% Note: *Excluding CMBS. Source: Federal Reserve Bank of New York 6 Figure 6: SOMA Treasury Principal Payments (a) Projected Principal Payments on SOMA Treasury Holdings as of February 2022 $ Billions Coupons 160 160 Bills 140 $ Billions 120 100 100 80 80 60 60 40 40 20 20 Mar-22 Jun-22 Sep-22 Dec-22 Source: Federal Reserve Bank of New York Mar-23 Redemptions 140 120 0 (b) Actual Principal Payments During Prior Balance Sheet Reduction Period Jun-23 Sep-23 Dec-23 0 Reinvestments Caps on redemption amounts Oct-17 Jan-18 Apr-18 Jul-18 Source: Federal Reserve Bank of New York Oct-18 Jan-19 Apr-19 Jul-19 7 Figure 7: SOMA Agency MBS Principal Payments (a) Projected Principal Payments on SOMA Agency MBS Holdings as of February 2022 $ Billions Forecast Forecast with rates 100 bps lower 70 60 Forecast 50 $ Billions 70 30 30 20 20 10 10 Jun-22 Sep-22 Dec-22 Mar-23 Reinvestments 50 40 Mar-22 Redemptions 60 40 0 (b) Actual MBS Paydowns During Prior Balance Sheet Reduction Period Jun-23 Sep-23 Dec-23 Note: Calculates principal payments on settled and unsettled MBS holdings of existing portfolio as of February 2022. Assumptions for interest rates are based on the marketimplied path of interest rates as of February 18, 2022. Source: Federal Reserve Bank of New York 0 Caps on redemption amounts Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Source: Federal Reserve Bank of New York 8
@FedFRASER