26 Sep 2023

Treasury notes, bonds, and mortgage-back securities account for over 80% of the Federal Reserve's balance sheet

Last week, the Fed's balance sheet plunged by almost $75BN last week, its biggest weekly drop since July 2020. The Fed's balance sheet is now over 10% below its April 2022 peak. But this is WITHOUT taking into account the current drop in value of the bonds held on the balance sheet. Indeed, if they were to be re-evaluated using a mark-to-market methodology, the Fed's assets could be reduced by another $1 trillion. To provide some context, he recent decline in market value would likely exceed the entirety of their QT policy thus far, which accounted for $939B. This would essentially revert their balance sheet size back to 2020 levels. Source: Bloomberg, Tavi Costa

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