US Federal Reserve’s Balance Sheet

By Roger Baettig | November 26 2012 2:49 PM

Hadrian Partners

Sponsorship Link

Data released by the Federal Reserve last Friday was supportive to the Treasury market on a supply/demand basis.

The Fed’s balance sheet expanded $20-B in the last period of measure led by a $28.9-B increase in Mortgage Backed Securities MBS

After a slow start, the Fed has started to dramatically expand its balance sheet. The aggressive buying of MBS may provide some spill over support to Treasuries.

The Fed’s data on commercial bank assets displayed a $17.2-B increase in Treasury and agency holdings in the last reporting period, seasonally adjusted. The increase suggests strong bank demand for fixed income product.

The Big Q: Does this bode well for demand at this week’s 2, 5, and 7 year note auctions?

The graphic following displays the relationship between the US Fed’s balance sheet size and the price of the S&P 500.

Notice that stocks have turned up with the Fed’s balance sheet expansion in recent weeks. The positive relationship contrasts most of Y 2012 when the series seemed to go their own directions and even displayed an inverse relationship.

Paul A. Ebeling, Jnr.Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.