TLDR
QT will reduce Fed balance sheet by ~79b in August: 60b for UST, 19b for MBS. UST reduction is much heavier on the mid-month maturities. No bill rolloff this month.
Note for new readers – If this is your first time reading my posts on QT and are interested in the mechanics behind QT and how I reach these projections. Please see my earlier posts starting with Reverse Engineering QT on July 29, 2022.
Also, if you are interested previewing the scripts authored by @dharmatrade that leverage the FED APIs to pre-calculate QT treasury/bill runoff schedules and MBS payments for the upcoming month implementing the QT rules and MBS estimation methods described in this series of posts, reach out to him on twitter. His scripts are a huge help in putting these posts together.
Greetings!
Another short note this month, though I am working on a separate note that will dive into the details of the QT rolloff mechanics with some interesting and unexpected (to me anyways, before I devoted the thought to it) implications. That note will hopefully be out in the next few days.
July MBS Rolloff Projection Accuracy
July MBS rolloff projection accuracy was pretty good again.
Projected MBS payments in July – 20,706,776,082
Realized MBS payment in July - 20,566,018,500
August MBS Payments
July prepayments were down, falling 10% vs June. Using @DharmaTrade ‘s scripts which faithfully only apply the 90% multiplier to the prepayment portion of each MBS payment, we reach the following MBS payment projections:
*The former FHLMC Gold amounts have been added to the UMBS as they were converted into it via the cusip consolidation process
**Note an additional 25,000,000 in Fed held CMBS is also expected to rolloff bringing us to a total MBS rolloff of 19,041,912,784
August UST Rolloff
Fed coupons maturing in August are:
· Total notes/bonds: 114,221,791,200
· Total FRNS/TIPS: 0
· Total Coupons: 114,221,791,200
Since Coupons maturing exceed the 60b cap, the Fed will fully reinvest their bill maturities in August.
Between the mid month and end month maturities, the Fed rolls off an amount proportional to the total amount maturing. Accordingly, since 60b will be rolled off out of a total ~114.22b for the month. ~52.529% (60/114.22) of the amounts maturing on 8/15 and 8/31 will roll off.
QT Balance Sheet Impact by Date in August
*The GNMA II MBS payment scheduled to be received on Sunday August 20th will instead be received the next business day which is Monday August 21st.
Weekly Projections for August
8/9/23 SOMA Domestic Security Holdings projection
8/16/23 SOMA Domestic Security Holdings projection
8/23/23 SOMA Domestic Security Holdings projection
8/30/23 SOMA Domestic Security Holdings projection
9/6/23 SOMA Domestic Security Holdings projection
As always, thanks for reading.
Best,
John