tag:blogger.com,1999:blog-4979477022008569617.post7518530797379546230..comments2023-05-02T06:38:35.510-07:00Comments on Roger Farmer's Economic Window: TheTreasury and the Fed are at Loggerheads over QERoger Farmerhttp://www.blogger.com/profile/05213844698773859392noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-4979477022008569617.post-47654277384339756552014-08-26T10:57:28.581-07:002014-08-26T10:57:28.581-07:00Thanks for responding James. I was assuming that ...Thanks for responding James. I was assuming that you were trying to replicate the SOMA report and its percentages further back than you could obtain the FRBNY reports. I now understand the graphs. My problem is really with Roger's "stylised" Fed balance sheet in the post where this came up: http://rogerfarmerblog.blogspot.co.uk/2014/08/why-death-matters-for-central-bank.html in which the Fed were supposed to hold no long-term bonds before the financial crisis. And I think the point I made there stands, which is that during the pre-crisis period, when the Fed was lamenting the low long-term interest rates as caused by a "saving glut" beyond their control, they were themselves holding about half their SOMA portfolio or $300-400bn in bonds longer than two years. At the time, notwithstanding publications like Warnock and Warnock presenting evidence that foreign reserves managers' purchase of treasuries was driving long rates lower, the Fed would cite the Woodford doctrine to argue that their holdings did not matter, but soon changed their tune during the financial crisis. Since Volcker, the Fed have always proved more imaginative in finding arguments and techniques for easing than they have for tightening, which if you ask me, is a big reason for the financial crisis and their continuing difficulties.<br /><br />Tim YoungRebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-62324477368352087782014-08-26T08:48:11.794-07:002014-08-26T08:48:11.794-07:00Rebel Economist: You are misreading the first char...Rebel Economist: You are misreading the first chart. As of the end of December 2007, we estimated that the Fed held 10.7% of total outstanding marketable nominal Treasury debt in the form of instruments less than 2 years, an additional 3% of the total outstanding in the form of instruments 2-5 years, an additional 1.9% in 5-10 years, and 2.0% in more than 10 years, for a total of 17.6% of the Treasury debt held by the Fed.<br /><br />Our definition of marketable nominal Treasury debt excludes TIPS. If you look at the Treasury document you linked to at http://www.treasurydirect.gov/govt/reports/pd/mspd/2007/opds122007.pdf you will find it reports marketable Treasury debt as of Dec 31, 2007 as $4.52 T. Of this $0.47 T is TIPS, leaving $4.05 T in marketable nominal debt. If you sum the entries for all weekly maturities for Dec 2007 from our database at http://econweb.ucsd.edu/~jhamilto/zlb_data.html you will find that it comes to exactly $4.05 T. Of this total, we calculate that the Fed held $0.43 T in nominal Treasury securities of less than 2 years duration, from which the figure 10.6% quoted above can be confirmed.<br /><br />Thanks for noting the link to http://www.ny.frb.org/markets/soma/sysopen_accholdings.html#export-builder. At the time our research was completed, the ability to download historical Fed holdings by CUSIP was not available at this or any other site. And in point of fact, I personally contacted a half-dozen people within the Federal Reserve Bank of New York (some of whom I know pretty well) requesting access to these data when we were conducting the research. I was told it could not be obtained. Possibly my inquiries and our research prompted the additional features to now be provided by the site. But note in any case that our data set goes back to 1990, whereas the FRB NY is still only reporting the numbers back to 2003.<br /><br />Instead we were able to obtain Fed holdings by broad maturity categories for every month going back to 1990, imputed these to individual CUSIP assuming proportional holdings within categories. But this individual imputation would have zero effect once the weekly holdings are reaggregated, as Roger has done, back into broad maturity categories. I'm quite convinced that if you did attempt to redo these calculations at the individual CUSIP level, your graphs would look very similar, if not identical, to Roger's above, if you did the calculations correctly.<br /><br />James HamiltonAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-16563434401835099722014-08-25T07:46:10.005-07:002014-08-25T07:46:10.005-07:00I suspect that there is something wrong with the H...I suspect that there is something wrong with the Hamilton and Wu data, which they admit comprises "rough estimates".<br /><br />Even with a back of the envelope calculation, the numbers don't look right. At the end of the 2007, the amount of outstanding US Treasury debt amounted to about $5tn ( http://www.treasurydirect.gov/govt/reports/pd/mspd/2007/opds122007.pdf ), while the SOMA portfolio was about $750bn in size, suggesting that on average across the curve, the SOMA held about 15% of treasuries, whereas you are reporting in Figure 1 that the SOMA held less than this even at short maturities around then.<br /><br />The obvious place to go for the SOMA holdings reports is the FRBNY website anyway. I don't understand why Hamilton and Wu were "unable to secure access to historical archives of these". I tried it ( http://www.ny.frb.org/markets/soma/sysopen_accholdings.html#export-builder ) just now, and I can. The reports even include the SOMA holding as a percentage of the outstanding stock. An unweighted average of this column in the spreadsheet for SOMA holdings of notes and bonds as at Jan 2nd 2008, the data I used in my blog post ( http://reservedplace.blogspot.co.uk/2008/01/us-economic-policy-shot-in-foot-1-soma.html ) is 15.6%.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-52404545125617039002014-08-17T21:03:35.758-07:002014-08-17T21:03:35.758-07:00Interesting stuff! Thanks for the links to the Sto...Interesting stuff! Thanks for the links to the Stone and McCarthy Slides and to your own blog post on this. <br /><br />Something I still don't understand. You quote the Treasury as saying<br /><br />"WAM (weighted average maturity) extension is not due to extending WAM of new issuance. WAM extends as maturing securities are reissued as longer maturity notes/bonds."<br /><br />Surely the decision to reissue maturing securities as "longer maturity notes" is a conscious decision by Treasury Officials. Nothing stops the Treasury from changing the maturity structure of its debt as old debt is retired.<br /><br />And the sharp change in maturities that occurred in November of 2008 does not look like a passive decision to reissue retiring securities at longer horizons.Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-76277635767215892962014-08-17T20:33:52.602-07:002014-08-17T20:33:52.602-07:00Interesting, but I don't think these charts gi...Interesting, but I don't think these charts give you enough of a window onto the recent interaction of the Treasury and the Fed. When the charts cut off in 2010, the first round of QE was still underway and Operation Twist was still in the future (beginning in 2011). QE1 did not seem to be as tilted toward longer maturities as the Fed's later unconventional operations. See slide 20 of this presentation: <br /><br />http://www.chicagofed.org/digital_assets/others/events/2013/risk_conference/smith_treasury_and_the_fed.pdf<br /><br />This chart, by Stone and McCarthy, compares the to evolution of total outstanding (blue line) and privately-held (red line) Treasury debt, as measured by duration-weighted 10-year equivalents. You can see that the privately held treasurys rose nearly in parallel to total outstanding during QE1, but not so much during later operations, when the Fed steered hard towards longer maturities.<br /><br />That presentation, by the way, argued that the Treasury and the Fed were not impeding each other but in fact had entered into a kind of symbiosis in the bond market. By 2012-2013, the Treasury was selling very short paper, with median maturities of less than two years, keeping out of the Fed's way as it absorbed longer paper. The Treasury's front-loaded issuance has been obscured by increases in the average maturity of the outstanding debt, but it has been shown that increases in this measure do not necessarily indicate a pattern of longer issuance. See: <br /><br />http://welltemperedspreadsheet.wordpress.com/2013/02/06/extending-the-weighted-average-maturity-complete-nonsense/ <br /><br /><br />Anonymousnoreply@blogger.com