TLDR
QT will reduce Fed balance sheet by ~77b in October: 60b for UST, 17b for MBS. UST reduction is significantly heavier on the end of month maturities. 7.56b of UST is bill rolloff spread through the 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 October 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!
Yesterday, Roberto Perli, the manager of the SOMA spoke at the National Association for Business Economics Annual Meeting. One of the main TLDRs of the speech was that QT was gonna keep going for a while. Mr. Perli does a great job laying out why that will be possible. Highly suggested reading if you have the time (https://www.newyorkfed.org/newsevents/speeches/2023/per231010) . Otherwise, I am deep in the weeds of data gathering, research, and analysis on the detailed holdings of MMFs, how they evolved through the pandemic and how they impact RRP uptake (hopefully my piece on it will be out in the next week or so), so lets get right to the rolloff numbers this month.
October MBS Payments
September prepayments were down significantly, falling ~15% vs August. Using @DharmaTrade ‘s scripts which faithfully only apply the 85% 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 17,006,649,764
October UST Rolloff
Fed coupons maturing in October are:
· Total notes/bonds: 46,335,231,300
· Total FRNS/TIPS: 6,107,279,300
· Total Coupons: 52,442,510,600
Coupons will fall short of the 60b cap in October and accordingly there will be 7,557,489,400 rolloff of bills as well. The Fed does this proportionally to the amount of bills maturing each Tue/Thur. For October, the rolloff percentage for bills is ~ 13.7159%. This is calculated by 7,557,489,400 (total bills to rolloff) / 55,100,254,700 (total bills maturing).
QT Balance Sheet Impact by Date in October
*The principal payment on Treasuries that mature on 10/15 and the GNMA I payment due on Sunday 10/15 will instead be received on Monday 10/16
Weekly Projections for October
10/4/23 SOMA Domestic Security Holdings baseline
10/11/23 SOMA Domestic Security Holdings projection
10/18/23 SOMA Domestic Security Holdings projection
10/25/23 SOMA Domestic Security Holdings projection
11/1/23 SOMA Domestic Security Holdings projection
As always, thanks for reading.
Best,
John
great detailed take as always, thank you!