FAST FIVE: Fed Buys $587 Billion In Bonds In Past Week, 2.7% Of GDP, Just As Foreign Central Banks Start To Liquidate

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Fed Buys $587 Billion In Bonds In Past Week, 2.7% Of GDP, Just As Foreign Central Banks Start To Liquidate Having moved from “Not QE” (or QE4 as it was correctly called), to the $750BN QE5 which came and went with the blink of an eye, to the Fed's open-ended and unlimited QEnfinity in the span of one week, the full “shock and awe” of the Fed's money printer is now on full display, and in just the past week, from March 19 to March 25, the Fed has purchased $587BN in securities ($375BN in TSYs, $212BN in MBS), or roughly 2.7% of the $21.4TN in US GDP.

This means that as of Wednesday close, when accounting for last week's repo operations, the Fed's balance sheet has increased by roughly $650BN, bringing it to just over $5.3 trillion, an increase of $1.2 trillion in the past two week, or roughly 5.6% of US GDP.

Which is hardly an accident: one look at the Treasury securities held in custody at the Fed shows that the past two weeks have seen a whopping $50BN in foreign central bank sales, a 1.7% drop which was the highest in six years since Russia pulled over $100BN in TSYs from the Fed at the start of the Crimean war in 2014.

More importantly, it also means that the biggest buyer of US Treasurys in the past decade, foreign official institutions (i.e., central banks and reserve managers) are now sellers, so now the US government needs private investors to soak up the ever increasing debt issuance.

Ironically, it was back on Jan 28, just as the world was learning about the coronavirus pandemic that we showed the long-term trajectory of the Fed's balance sheet as calculated by the CBO.

Categories: ZH