The Fed Appears To Have Stopped Doing Much of Anything With Its Balance Shet

Two from Wolf Street:

September 10
“Don’t Fight the Fed?” Fed’s Assets in Week 13 Since Peak-QE 

Total assets on the Fed’s balance sheet for the week ended September 9, released this afternoon, fell by $7 billion from the prior week, to $7.01 trillion. Since the peak on June 10, total assets have declined by $158 billion:

The Fed has numerous asset accounts on its balance sheet that are unrelated to QE. Some of them fluctuate from week to week. Others, such as its holdings of gold or SDRs (IMF’s Special Drawing Rights) do not fluctuate. But to see where the Fed is going with QE, we look at the five major QE-related categories on the Fed’s balance sheet: Repurchase Agreements (repos), Special Purpose Vehicles (SPVs), central bank liquidity swaps, mortgage-backed securities (MBS), and Treasury securities. In total, balances of the five categories combined fell by $11 billion on today’s balance sheet compared to last week:

• Repos: unchanged (at $0)
• SPVs: -$2 billion
• Central Bank Liquidity Swaps: -$17 billion
• MBS: unchanged
• Treasury securities: + $7 billion

Repos: at $0 for the 10th week:....

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And:

September 9
The Fed Bought No Bond ETFs (None, Zero, Zilch) in August. ETF Holdings Actually Fell. Bought Almost No Corporate Bonds 
The Fed stepped away from the market after its jawboning created the biggest bond bubble ever.

The Fed started buying corporate bond ETFs for the first time ever in May and corporate bonds for the first time ever in June. These programs had been ballyhooed with enormous fanfare in the media – that the Fed would load up its Special Purpose Vehicles (SPVs) with $750 billion of corporate bonds and bond ETFs, including junk-bond ETFs.

These pre-announcements and announcements and announcements of expansions of prior announcements triggered the biggest corporate bond bubble and junk bond bubble in history before the Fed even started buying.

Bond prices surged and yields plunged and ETFs soared, and junk bonds soared and their yields plunged, and junk-bond ETFs soared as everyone was trying to front-run the Fed’s massive purchases.

So the Fed accomplished its handiwork – creating a bond bubble and bailing out asset holders during the worst economy of in a lifetime – mostly by jawboning, and actually bought very small amounts of bonds and bond ETFs through July. It really just dabbled in them....

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