From Wolf Street, January 4:
The Fed has shed 31% of the Treasury securities it had added during pandemic QE.
The Fed’s Quantitative Tightening (QT) hums along on autopilot. But the banks have figured out since one-year yields began to drop last November that they can earn risk-free interest income by borrowing from the Fed at the lower rate of the bank bailout facility, the BTFP, of around 4.85%, and then deposit that cash back at the Fed as reserves and earn 5.4%, risk free, hassle-free, thank you.
That cash stays at the Fed, it doesn’t go anywhere, it just makes the banks some risk-free moolah. And use of that trick has jumped, obviously. That facility is set to expire in March, so they’re trying to get in while they still can. And we’ll get to that in a moment....
....MUCH MORE
