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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

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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

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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

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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
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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)

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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

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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)

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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

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