The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
The Federal Reserve’s market functioning purchases: from supporting to sustaining Lorie K. Logan – Executive Vice President, SOMA Manager Figure 1: SOMA Treasury and MBS Purchases Treasury $ Billions 120 MBS 100 80 60 40 20 0 03/13/20 03/25/20 04/06/20 04/17/20 04/29/20 05/11/20 05/21/20 06/03/20 06/15/20 06/25/20 07/08/20 Source: Federal Reserve Bank of New York 1 Figure 2: Federal Reserve Assets Since 2007 $ Billions 9,000 Other MBS Central Bank Liquidity Swaps Primary, secondary, and seasonal credit Treasuries Credit and liquidity facilities Repurchase Agreements 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 01/03/07 01/03/09 01/03/11 01/03/13 01/03/15 01/03/17 01/03/19 Source: Federal Reserve Board, H.4.1 release 2 Figure 3: Federal Reserve Assets in 2020 $ Billions 9,000 Other MBS Central Bank Liquidity Swaps Primary, secondary, and seasonal credit Treasuries Credit and liquidity facilities Repurchase Agreements 02/01/20 05/01/20 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 01/01/20 03/01/20 04/01/20 06/01/20 07/01/20 Source: Federal Reserve Board, H.4.1 release 3 Figure 4: Selected Market Functioning Indicators Direct metrics 1. Direct measures of liquidity – ease with which assets can be bought and sold Bid-ask spreads Price impact coefficients Market depth 2. Direct measures of relative value – spreads between related instruments Treasury cash-futures basis On-the-run spreads Spline errors MBS-Treasury yield spreads Indirect metrics 3. Measures of trading pressure – balance of investor flows Dealer inventories Client-initiated transaction data Foreign reserve manager holdings 4. Results of open market operations – strength of market participants’ desire to sell Offer-to-cover ratios Favorable offer-to-cover ratios 4 Figure 5: Client Sales of Off-the-Run Nominal Treasuries $ Billions 0-2.25 Year 2.25-4.5 Year 4.5-7 Year 7-20 Year 20-30 Year 120 100 80 60 40 20 0 01/02/20 02/02/20 03/02/20 04/02/20 05/02/20 06/02/20 Note: 5-day moving average shown Source: Trade Reporting and Compliance Engine (TRACE) 5 Figure 6: Treasuries in Custody for Foreign Official Accounts $ Billions 3,100 3,000 2,900 2,800 2,700 06/01/19 08/01/19 10/01/19 12/01/19 02/01/20 04/01/20 06/01/20 Note: Treasury securities held in custody by the Federal Reserve for foreign official and international accounts. Source: Federal Reserve Board, H.4.1 release 6 Figure 7: Treasury and MBS Bid-Ask Spreads (a) Treasury Bid-Ask Spreads (b) Agency MBS Effective Bid-Ask Spread Ticks Daily Treasury Purchases (RHS) $ per $100 0-2.25 Year (LHS) 3.00 2.50 $ Billions 8 2.25-4.5 Year (LHS) 100 7 4.5-7 Year (LHS) 90 7-20 Year (LHS) 80 20-30 Year (LHS) 70 2.00 60 1.50 1.00 0.50 0.00 02/01/20 04/01/20 05/01/20 06/01/20 Note: Average bid-ask spreads for nominal Treasury coupon securities. Source: Federal Reserve Bank of New York 07/01/20 50 45 40 35 30 25 20 15 10 5 0 Effective Bid-Ask Spread (LHS) 6 5 4 50 3 40 2 30 1 20 0 10 02/01/20 0 03/01/20 $ Billions Daily MBS Purchases (RHS) 03/01/20 04/01/20 05/01/20 06/01/20 07/01/20 Note: A tick is 1/32 of $1. Effective bid-ask spread 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-tocustomer transactions. Source: Desk calculations, Financial Industry Regulatory Authority (FINRA), Federal Reserve Bank of New York, Trade Reporting and Compliance Engine (TRACE) 7 Figure 8: Treasury Cash-Futures Basis Percent 1.75 Contract roll Contract roll 1.50 1.25 1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 01/31/2002/11/2002/20/2003/02/2003/10/2003/18/2003/27/2004/06/2004/16/2004/24/2005/05/2005/13/2005/21/2006/01/2006/10/2006/18/2006/29/20 02/01/20 03/01/20 04/01/20 05/01/20 06/01/20 07/01/20 Note: 5-year futures contract implied repo rate spread to 3-month OIS; reference contract changes at the end of February and Maydue to contract rolls. Source: Bloomberg, Desk Calculations 8