Halister News

(Bloomberg) -- The Fed will likely maintain its policy of reinvesting maturing Treasuries in proportion to all new coupon offerings as it unwinds its portfolio, but “there may be some voices” in the Fed who favor a faster roll-off, Bank of America strategist Mark Cabana says in note Thursday.

• In phone interview, Cabana said St. Louis Fed President Bullard and Boston Fed President Rosengren have previously supported an earlier unwind; while they didn’t explicitly endorse a faster roll-off, it’s “reasonable to assume” some voices might hold this opinion

• Shift in reinvestment policy would impact portfolio maturity and duration, cause “greater specialness” in 10Y USTs, could modestly steepen curve: Cabana in note
  • Focus on 2Y and 3Y USTs would help reduce duration and maturity; less duration risk “may place more upward pressure on term premiums”
  • Fewer 10Y issues in Fed’s daily securities lending facility “could exacerbate deep specials trading and fails” in new 10Y issues, straining liquidity
  • Policy shift could contribute to curve steepening if Treasury offsets Fed’s holdings with more longer-tenor issuance; more expensive for Treasury to extend WAM
• Strongest arguments in favor of Fed keeping proportional reinvestment strategy are that it would limit adjustments in portfolio-reduction process, simplify communications; choosing to hold more new issue 10Y notes could also promote market functioning and liquidity
• “At some point in the future,” Fed will look to increase shorter- dated holdings to return to pre-crisis levels

To contact the reporter on this story: Anna Windemuth in New York at awindemuth1@bloomberg.net To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net Vivien Lou Chen

(Bloomberg) -- Following are forecasts for today’s economic releases as compiled by Bloomberg News.

• Initial Claims 243k; range 235k to 250k (40 estimates)
• Cont. Claims 1958k; range 1950k to 1962k (6 estimates)
• "Claims are prone to bouncing around in July and the early portion of August, given the annual retooling in the auto industry. Nevertheless, the pace of claims points to an extremely tight labor market and trends are consistent with a declining unemployment rate”: Bloomberg Intelligence
• The prior report showed claims rose to 244,000 in the week ended July 21

To contact the reporters on this story: Chris Middleton in Washington at cmiddleton2@bloomberg.net; Vincent Del Giudice in Denver at vdelgiudice@bloomberg.net To contact the editors responsible for this story: Alex Tanzi at atanzi@bloomberg.net Kristy Scheuble

--SHAJI MATHEW