US Economic Chartbooks
Please see our Economic Week Ahead Chartbook for a discussion of next week's economic releases provided in a visually friendly format that includes graphs, brief descriptions of SMR's forecasts, and links to detailed data previews. If you missed anything from last week, see our Economic Week in Review Chartbook for a look back at the releases with links to full analyses.
Fed Balance Sheet Normalization = Normalization of Term Premium
When the Fed reduces the amount of Treasury debt it reinvests, the Treasury will have to increase its borrowing from the public by an equivalent amount, and the average maturity of debt outstanding will rise. The 10-year Treasury note term premium, which has been greatly compressed by the Fed's Treasury purchases, should normalize to moderately higher levels as the Fed normalizes the size of its balance sheet and short-term interest rates.
Research Briefing on 'Fed's Path to Balance Sheet Normalization'
The FOMC has a number of options when it comes to normalizing its balance sheet from the $4.25 trillion at present to a likely end balance of something above $2 trillion at conclusion of the process. Policymakers have indicated that the process will be announced well in advance of the start of any change in reinvestment policy, and is expected to involve gradual reductions that will not disrupt markets. To view the PDF, click here.
China's Holdings of Treasuries Jump $27.9 Billion in March
--Foreign investors increased their holdings of Treasuries by $67.3 billion, with China accounting for $27.9 billion of the increase.
--The TIC transactions data showed foreign investors selling $1.1 billion of agency debt/MBS in March, the weakest participation since April 2014.
Treasury Prepares for SOMA Redemptions; Ultra-Longs Need More Review
--The Treasury announced a $62.0 billion refunding, as expected.
--Ultra-long bonds are still under review. Dealers seemed lukewarm to the idea, but suggested Treasury might consider a 50-year zero-coupon bond.
--Dealers recommended that Treasury hold higher cash balances, but it's a moot point while the debt limit is binding.
--When the Fed stops reinvesting its maturing Treasury holdings, Treasury will increase issuance across the curve. Initially, Treasury might concentrate the issuance at the front end of the curve.