Fed Watch - Fall 2009

Federal Reserve holdings of mortgage-backed securities (MBS) this week exceeded those of Treasuries for the first time ($777bn vs. $774bn). The Fed is now well past half way through its program to purchase $1.25 TN of MBS – which is slated to be completed in March. Federal Reserve Credit jumped to $2.172 TN, up from less than $900bn to begin September 2008.

10/25
Treasury has sold $1.6 trillion in notes and bonds to finance a budget deficit that reached a record $1.4 trillion in fiscal year 2009 that ended Sept. 30. Debt amounted to 9.9 percent of the nation’s economy, triple the size of the 2008 shortfall.

At the same time, interest paid by the U.S. dropped $67.8 billion even as outstanding debt rose 34 percent to $7 trillion from $5.21 trillion, government data shows. Yields on 10-year Treasuries ended last week at 3.48 percent, less than half the average of 7.31 percent over the past 40 years.