Nick Nasad
All posts from Nick Nasad
Nick Nasad in Nick Nasad,

The Shifting Composition of Fed Balance Sheet in the Wake of QE

In honor of today's FOMC Minutes report and following up on yesterday's QE chart, here's another great visualization of the Fed's balance sheet - this time broken down by maturities.

What we notice is that while the Fed's main holdings consisted of short-term 1-year or less duration Treasuries prior to 2008, now the bulk of its holdings are on longer-term bonds and notes. The "5 to10 year" duration is the larger at around $900 billion, and the "over 10 years" category comes in around $550 billion. The "1 to 5 year" has also spiked up in 2013 to around $650 million after being wound down somewhat during 2011.

While I'm no expert on bonds, the implication here is that the Fed is holding bonds which are more sensitive to interest rate risk. When interest rates change, the prices of bonds with longer maturities move more than those with short-term maturities. That means the recent rise in US yields is likely denting the value of these holdings - not a good thing for the Fed.

I'll try and dig up some more interesting charts I have on QE to share in an attempt to get at some of the underlying trends and implications behind the Fed's recent policy choices.

- Nick