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Could The Fed Let Bills Roll Off?


Total Fed assets slipped slightly in the week to Weds May 26, by -$19.3bln to $7.90trn. A rise in Tsy/TIPS assets was not enough to offset a decline in MBS holdings.

  • One column in the assets table that has flatlined at zero since the launch of the current asset purchase program is T-bills, which have remained stuck at $326.0bln for 62 consecutive weeks.
  • In late 2019, the Fed started buying ~$60bn/month in bills as a "technical" measure in order to ensure "ample reserves" were available in the system. When QE restarted at the beginning of the pandemic, this was no longer necessary, but holdings continued to be rolled over via reinvestment.

Source: Fed, MNI

  • Some have suggested (including BofA) that the Fed could in future allow bills to mature without reinvestment. This would help drain some reserves from the system, and probably wouldn't have too much negative impact on the front-end (indeed the Fed may be happy with a modest yield rise, with some bills recently trading in negative yield territory several months out).

AssetsTotal AssetsMBSTIPSTreasury Bonds/NotesOther
Last Week's Net Change (USDbn)-19.3-
4-Week Net Change (USD bn)122.653.010.272.4-13.0
Total Holdings (USD bn)7903.52244.3342.95087.2569.8

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