Fed Cuts QE Again, Will Buy $50BN In TSYs, $25BN In MBS Daily

From an initial $75 billion per day to $60 billion per day last week, The Fed had just announced another 'taper' in its bond-buying program to $50 billion per day for next week.

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Having implicitly confirmed there is now a shortage of bonds as demonstrated by the recent repo ops that saw zero submissions as instead of using repo to park bonds with the Fed Dealers merely sell them back to the Fed, the NYFed has announced it will continue cutting back, or tapering, its "unlimited QE" bond-buying next week.

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The new schedule is as follows:

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This makes some sense as The Fed's intervention's purpose - “to support the smooth functioning of markets” that had become impaired - has been at least partially achieved, with key metrics such as off-the-run spreads and the cash-futures basis moving back toward normal levels.

But that's not all, because the Fed also announced that its MBS purchases would be tapered by $5BN daily to $25BN as this schedule shows.

In sum, between the $200BN in TSY Pomos through Thursday and $100BN in MBS purchases in the same interval, the Fed's balance sheet will grow by another $300BN in the first 4 days of next week.

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