Fed Shrinking it's Balance Sheet

[dime]

The 10 year yield is nearly up 30 basis points already since Sep 8. Many analysts call for above 2.5 before the year is out.

Is there a specific date the Fed will scale back it's repurchasing or has it already started?

CNBC says the Fed is expected to reduce it's purchases of treasuries and mortgages by by 10 billion this month. Blackrock CIO expects Fed to unload 50 billion assets each month next year.

From what I gather this will cause rates to rise... and towards the longer end of the curve? Should we expect to see a steeping 2-10 yield spread?

Traders often viewed an increase in rates as 'risk on', perhaps this is a thing of the past in this new era of Fed manipulating rates higher. Instead it could now signal central banks trying to unload and unwind the consequence of QE over the past decade?

What's your thoughts?

 

[zdreg]

I wouldn't bet your "dime" on anything CNBC says.

 

[O(1)]

The 10 year yield is nearly up 30 basis points already since Sep 8. Many analysts call for above 2.5 before the year is out.

Is there a specific date the Fed will scale back it's repurchasing or has it already started?

CNBC says the Fed is expected to reduce it's purchases of treasuries and mortgages by by 10 billion this month. Blackrock CIO expects Fed to unload 50 billion assets each month next year.

From what I gather this will cause rates to rise... and towards the longer end of the curve? Should we expect to see a steeping 2-10 yield spread?

Traders often viewed an increase in rates as 'risk on', perhaps this is a thing of the past in this new era of Fed manipulating rates higher. Instead it could now signal central banks trying to unload and unwind the consequence of QE over the past decade?

What's your thoughts?

"In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans."
https://www.federalreserve.gov/newsevents/pressreleases/monetary20170920a.html


"

• The Committee intends to gradually reduce the Federal Reserve's securities holdings by decreasing its reinvestment of the principal payments it receives from securities held in the System Open Market Account. Specifically, such payments will be reinvested only to the extent that they exceed gradually rising caps.
  • For payments of principal that the Federal Reserve receives from maturing Treasury securities, the Committee anticipates that the cap will be $6 billion per month initially and will increase in steps of $6 billion at three-month intervals over 12 months until it reaches $30 billion per month.
  • For payments of principal that the Federal Reserve receives from its holdings of agency debt and mortgage-backed securities, the Committee anticipates that the cap will be $4 billion per month initially and will increase in steps of $4 billion at three-month intervals over 12 months until it reaches $20 billion per month.
  • The Committee also anticipates that the caps will remain in place once they reach their respective maximums so that the Federal Reserve's securities holdings will continue to decline in a gradual and predictable manner until the Committee judges that the Federal Reserve is holding no more securities than necessary to implement monetary policy efficiently and effectively.

• Gradually reducing the Federal Reserve's securities holdings will result in a declining supply of reserve balances. The Committee currently anticipates reducing the quantity of reserve balances, over time, to a level appreciably below that seen in recent years but larger than before the financial crisis; the level will reflect the banking system's demand for reserve balances and the Committee's decisions about how to implement monetary policy most efficiently and effectively in the future. The Committee expects to learn more about the underlying demand for reserves during the process of balance sheet normalization.

"
https://www.federalreserve.gov/newsevents/pressreleases/monetary20170614c.htm

 

[dime]

I wouldn't bet your "dime" on anything CNBC says.

Seems maybe you've missed the point. Regardless who's reporting ... Washington Post, Marketwatch whatever ... the Fed said it would start to shrink its balance sheet by $10 billion a month.

 

[zdreg]

Seems maybe you've missed the point. Regardless who's reporting ... Washington Post, Marketwatch whatever ... the Fed said it would start to shrink its balance sheet by $10 billion a month.

I wouldn't bet your "Dime" that someone at the Fed said it or if someone said it that they will follow through.













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[DeltaRisk]

If only you knew.....

 

[Martinghoul]

It is not clear what the effects of the unwind are going to be. There are lots of opinions and lots of uncertainty.

One thing is reasonably clear: the recent selloff didn't have anything to do with the start of the balance sheet unwind process.

 

[DeltaRisk]

It is not clear what the effects of the unwind are going to be. There are lots of opinions and lots of uncertainty.

One thing is reasonably clear: the recent selloff didn't have anything to do with the start of the balance sheet unwind process.

*Cough cough*

 

[piezoe]

The Fed does not consist of a bunch of people running around with their zippers open. Policy is not set in stone. They will test the waters and adjust policy as needed. But as they unwind, reserves will fall and the Fed funds rate will rise. The pace of the unwind can be adjusted as needed to meet overnight rate targets. It is as much art as science; maybe more art.

 

[DeltaRisk]

The direction is set in stone.
Once decided, it is used until the desired goal is reached. No different than before.