Fed Debt Unwind End Is Set. So Treasury’s Looking at What’s Next

Fri, April 12, 2019


This all matters to the overseers of America’s debt because
additional Treasury purchases by the Fed would reduce how much
the government needs to tap from the the public to meet its
funding needs. The Fed’s decision also factors into what
maturities Treasury decides to issue. The central bank’s
portfolio is about $4 trillion, including around $2.2 trillion
of Treasuries and $1.6 trillion of agency mortgage debt.
“It’s obviously a critical question for the Treasury,” said
Lou Crandall, chief economist at Wrightson ICAP. “The Treasury
should have a sense of what one of the biggest players in the
market is going to do.”

Crandall expects the Fed will eventually tilt its Treasury
purchases toward bills, as it seeks to align the maturity of its
debt holdings with the average maturity of the public debt.
Currently, the weighted average maturity of the Fed’s Treasury
investments is about 8 years. That compares with 5.8 years for
the market.