HALISTER1: Fed’s UST Wind-Down to Be Larger and Faster Than MBS: Jefferies

Fed’s UST Wind-Down to Be Larger and Faster Than MBS: Jefferies

(Bloomberg) -- Fed to reduce UST and MBS holdings simultaneously either late this year or in 2018, with the UST wind-down being the “larger and faster” of the two, Jefferies economists Ward McCarthy and Thomas Simons wrote in note Friday.
  • Winding down positions in both types of securities at same time is consistent with way Fed purchased them in QE programs
    • UST wind-down will be larger, faster given size of portfolios
  • FOMC will favor tapering maturing issues, instead of selling assets or letting all maturing issues roll off
  • “End of 2017 is the earliest, 2018 is more likely” time for change in Fed’s reinvestment policy
  • There’s evidence to support idea that Fed will pause normalization of rates when it initiates changes to its reinvestment policy
    • Also possible that Fed delays changes in reinvestment policy until rates are at longer-run neutral level
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Thomas Simons (Jefferies LLC)
Ward McCarthy (Jefferies LLC)

Topics
To Be Announced Securities

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