Unwinding Of Fed Balance Sheet Catalyst For Higher Yields, Lower Stock Prices

But the Fed’s balance sheet reduction is also suggestive of lower, not higher, interest rates. In the past, despite what the Fed suggested would happen, rates rose during their QE programs as money rotated out of the "safety of bonds" back into equities. When those programs ended, rates fell.

The Fed unwinds its balance sheet. One of the things the Fed mentioned is that rates need to return to more normal historical levels at some point. This will be in the context of a massive Fed.

Fed's QE Unwind Accelerates Sharply | Wolf Street – At the end of October, before the MBS Unwind became visible, the Fed held $1,770.2 billion in MBS, at the low point of the period. On today’s balance sheet, also the low point in the chart, the Fed shows $1,760.7 billion. From low to low, the balance dropped $9.5 billion. This reflects trades from two to three months ago.

In fact, just last week the Fed increased its balance sheet by over $13.5 billion. No wonder the stock market shot higher. Since these balance sheet expansions generally have occurred at points where asset prices were at risk due to some "events," the latest expansion occurred during the "tax cut hope" driven rise.

The Federal Reserve’s balance sheet has ballooned to about $4.5 trillion, as of December 31, 2016, thanks to years of quantitative easing. In the aftermath of the 2008 financial crisis, the central bank began purchasing troubled assets – such as long-term Treasuries and mortgage-backed securities – to provide banks with capital for lending and acquiring other assets.

The Fed has begun unwinding its balance sheet slowly, by selling off $10 billion in assets a month – $6 billion of government debt and $4 billion of mortgage-backed securities. So far, the.

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Summary. The $4.5 Trillion balance sheet is comprised of about 55.1% of Treasurys, 39.5% Mortgage Backed Securities, with the remainder being other fixed income securities. The Federal Reserve remarked that as of the July 2017 meeting, they anticipated unwinding their balance sheet "relatively soon".

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Fed's QE-Unwind Proceeds Despite Stock Market Sell-Offs. – Authored by Wolf Richter via WolfStreet.com, Didn’t miss a beat. The sixth month of the QE-Unwind ended on March 31, which is reflected in the Fed’s balance sheet, released this week, for the week ending April 4. The QE-Unwind appears to be on automatic pilot, clicking along at the pace that accelerated in January, despite the sporadic stock market sell-offs since early February.