The significant decline in the market value of Treasury notes, bonds, and mortgage-backed securities, which make up over 80% of the Federal Reserve’s balance sheet, could potentially reduce the Fed’s assets by about $1 trillion, surpassing the impact of their QT policy. This would essentially bring their balance sheet back to 2020 levels, indicating the rapid erosion of the collateral value of these fixed-income assets amid more aggressive tightening policies than officially stated by the Fed.
A total bloodbath in Treasury notes, bonds, and mortgage-back securities again:
Here is a reminder that these instruments account for over 80% of the Federal Reserve's balance sheet.
If they were to be reevaluated using a mark-to-market methodology, the Fed's assets could be… pic.twitter.com/x0YNQez2iJ
— Otavio (Tavi) Costa (@TaviCosta) September 25, 2023
We are starting to see the huge deficits of the US government forcing rates higher. As the US Treasury needs to borrow more and more money to fund the $33 trillion in debt and $2 trillion deficits, it is requiring higher and higher interest rates to get investors to buy that… https://t.co/p6Lqn2yUtN
— Ian Miles Cheong (@ianmiles) September 25, 2023