Pink Tickets On 'QT' Days

This means that the process is somewhat lumpy. Whereas quantitative easing purchases would be limited to $5 billion or so on any one day, with the quantitative tightening balance sheet wind-down, the maturing days can be many magnitudes larger.

Take today for example. The Federal Reserve owns the following bonds:

  • $3,888,900,000 of the 9.125% of 05/15/2018

  • $542,818,700 of the 1% of 05/15/2018

  • $21,795,923,000 of the 3.875% of 05/15/2018

That’s over $26 billion of bonds maturing today.

I am not some lonely lunatic who singularly believes the Federal Reserve’s POMO operations directly affect the stock market.

If you don’t already follow the terrific Martingale_Macro, then give him a click. I’ll leave the math jokes aside, but will highlight that he has already observed the reverse of my quantitative easing stock market outperformance with the following table of stock market declines on quantitative tightening days:

Brilliant! I should have been on this way earlier.

The days when the Federal Reserve has a large bond maturity have seen abnormally large declines in the S&P 500. I am writing this before the close, but it’s no surprise that today’s stock market performance is weak.

I can almost hear the cries of disdain - “sure, lots of good that does bringing this to our attention after the decline.” Ahh, but here’s my value add - the Federal Reserve publishes their portfolio for everyone to see:

The next big maturity day is May 31st. On that day we get almost $29 billion maturing on month-end. Watch out below.

For those that want to play along at home, here is the link for the Federal Reserve’s portfolio. I will leave it to all the efficient market theorists to buy on those days. I’ll be pulling out the pink tickets…

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