MNI POLICY: Fed Balance Sheet Edges Down For Second Week

--Declines On FX Swaps And Repos

By Evan Ryser

     WASHINGTON (MNI) - The Fed's balance sheet edged down for a second week as

FX swaps and repos rolled off, Fed data released Thursday showed. 

     The Fed's portfolio shrank USD12 billion to USD7.08 trillion, driven by a

USD78 billion decline in FX swaps and a USD9 billion decline in repos. The

balance sheet was still up 67% from USD4.24 trillion in early March. 

     Several emergency 13(3) liquidity facilities have continued to shrink in

recent weeks. From one week prior the primary dealer facility shrank by USD1.7

billion and the money market facility shrank by USD1.8 billion, when controlled

for Treasury contributions.

     Policy makers say declining use of some emergency financing brought in when

Covid-19 froze up markets is a sign the programs are helping return trading to

normal. 

     The much-awaited Main Street lending program still saw no use. Boston's

Eric Rosengren has said he expects the Fed to begin "funding our 95% share of

the loan" in "the next couple of weeks, but since the banks are able to fund the

loans now, it's really not an impediment."

     --LOWERED EXPECTATIONS

     The TALF facility remained at zero. The corporate credit facility increased

again at a roughly USD300 million daily average and the paycheck protection

facility increased by USD5 billion to USD63 billion.

     Given the slow uptake, improving credit landscape and remaining hurdles for

some emergency facilities, some analysts have cut their projections for the

Fed's balance sheet to peak around USD9 trillion.

     Treasury holdings increased USD28 billion to a record USD4.2 trillion and

MBS held outright increased by USD25 billion to a record USD1.94 trillion.

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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