Fed Shrank Balance Sheet by $248.7B Thanks to Safe Haven Demand

Frightened by China’s roller coaster equity prices and Europe’s accelerating deconstruction, investors had an offer they could not refuse: America’s central bankers were selling arguably the best and the safest fixed-income assets on the planet.

Between December 23, 2015 and January 6, 2016, the Fed shrank its balance sheet by $248.7 billion.

Judging by the strong demand for these assets, it seems that many investors did take advantage of the offer: The yield on bellwether ten-year Treasury note was driven down by 7.4 percent during the first trading week of the year.

Good work. The Fed could safely allow some of the maturing assets to roll off its balance sheet, while stepping up its selling into a strong bond market rally.

The feat was so alluring that it prompted some Fed officials’ guesses last week on how long it would take to normalize the balance sheet.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza