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Reviewing QE(s) and Operation Twist

Posted By Barry Ritholtz On September 11, 2012 @ 12:30 pm In Bailouts,Federal Reserve,Fixed Income/Interest Rates | Comments Disabled

Have a look at these first two charts, then scroll down:

 

Click to enlarge:
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[2]

 

 

Ron Griess of The Chart Store [3] starts with these two as he chronicles the Fed’s actions. He reprints excerpts of their press releases, comparing what was said with charts of various asset classes before and after QE to see actually happened thanks to Fed intervention.

I found it highly informative . . .

 

 

QE1
Release Date: November 25, 2008
For release at 8:15 a.m. EST

The Federal Reserve announced on Tuesday that it will initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)–Fannie Mae, Freddie Mac, and the Federal Home Loan Banks–and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae. Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late. This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.

Purchases of up to $100 billion in GSE direct obligations under the program will be conducted with the Federal Reserve’s primary dealers through a series of competitive auctions and will begin next week. Purchases of up to $500 billion in MBS will be conducted by asset managers selected via a competitive process with a goal of beginning these purchases before year-end. Purchases of both direct obligations and MBS are expected to take place over several quarters. Further information regarding the operational details of this program will be provided after consultation with market participants.

Release Date: March 18, 2009
For immediate release

…To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

Release Date: September 23, 2009
For immediate release

…To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009.

Release Date: November 4, 2009
For immediate release

…To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010.

Release Date: March 16, 2010
For immediate release

…To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month.

QE - 1 Ends
QE -2 Hinted
Release Date: August 10, 2010
For immediate release

…To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.1 [4] The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.

QE – 2 Begins
Release Date: November 3, 2010
For immediate release

…..To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.

Release Date: June 22, 2011
For immediate release

…..The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings.

QE – 2 Ends
Operation Twist Begins 
Release Date: September 21, 2011
For immediate release

…..To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities. The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.

Release Date: June 20, 2012
For immediate release

…..The Committee also decided to continue through the end of the year its program to extend the average maturity of its holdings of securities. Specifically, the Committee intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less. This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities.

We have applied the dates gleaned from the above news releases to 7 charts.  We have refrained from adding any comments to the charts so that the reader can draw his/her own conclusion.

 

More charts — 30 Year, CRB, Copper, Crude Oil, Gold — after the jump

 

Click to enlarge:

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Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2012/09/reviewing-qes-and-operation-twist/

URLs in this post:

[1] Image: http://www.ritholtz.com/blog/wp-content/uploads/2012/09/83.jpg

[2] Image: http://www.ritholtz.com/blog/wp-content/uploads/2012/09/9-7-12-QE-Chart-SP.gif

[3] The Chart Store: http://www.thechartstore.com/

[4] 1: http://www.thechartstore.com/default.aspx?MenuItemID=251&MenuGroup=Subscribers+Home+Front+Page&#fn1

[5] Image: http://www.ritholtz.com/blog/wp-content/uploads/2012/09/9-7-12-QE-Chart-30-year.gif

[6] Image: http://www.ritholtz.com/blog/wp-content/uploads/2012/09/851.jpg

[7] Image: http://www.ritholtz.com/blog/wp-content/uploads/2012/09/86.jpg

[8] Image: http://www.ritholtz.com/blog/wp-content/uploads/2012/09/87.jpg

[9] Image: http://www.ritholtz.com/blog/wp-content/uploads/2012/09/88.jpg

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