Operating Policy
Statement Regarding Reinvestment in Treasury Securities and Agency Mortgage-Backed Securities
March 20, 2019

On March 20, 2019, the Federal Open Market Committee (FOMC) provided additional information regarding plans for its securities holdings via its Balance Sheet Normalization Principles and Plans.  Specifically, the Committee intends to slow the reduction of the Federal Reserve’s holdings of Treasury securities by lowering the cap on monthly Treasury redemptions beginning in May.  The Desk will continue to reinvest each month’s principal payments from Treasury securities, agency debt, and agency mortgage-backed securities (MBS) only to the extent that such payments exceed the corresponding monthly cap amounts.  Additionally, starting in October, the first $20 billion per month of any agency principal payments received will be reinvested in Treasury securities; any additional agency principal payments above $20 billion will be reinvested in agency MBS.  As noted in the Principles and Plans, the Committee intends to adjust the monthly caps as follows:


 Monthly Caps on SOMA Securities Reductions
  Treasury Securities Agency Securities*
Oct 2018 – Apr 2019 $30 billion $20 billion
May 2019 – Sep 2019 $15 billion $20 billion
From Oct 2019 $0 billion $20 billion**
*Applies to combined principal payments of agency debt and agency MBS.
**The first $20 billion of any agency principal payments received will be reinvested in Treasury securities.  Any additional agency principal payments above $20 billion will be reinvested in agency MBS.

Consistent with current practice for Treasury securities, the Desk will roll over at auction the principal payments from the Federal Reserve’s holdings of Treasury securities maturing during each calendar month that exceed the cap amount for that month.  The Desk will allocate that rollover amount across the month’s maturity dates in proportion to the amount of SOMA Treasury holdings maturing on each of those dates.  Rollovers will continue to be accomplished by placing non-competitive bids at Treasury auctions; the bids will be allocated across the securities being issued in proportion to their announced offering amounts.  The final redemption cap will be applied to the September scheduled maturities, which occur on September 30.

Consistent with current practice for agency securities, the Desk will reinvest in agency MBS any principal payments from SOMA holdings of agency debt and agency MBS received during each calendar month that exceed the cap amount for that month.  The Desk’s reinvestment purchases, if any, will be concentrated in newly-issued agency MBS in the To-Be-Announced (TBA) market.  The planned amount of reinvestments in agency MBS that is anticipated to take place over each monthly period will be announced on or around the ninth business day of the month and will generally be conducted over the subsequent one-month period until the next announcement.

Additionally, in the Principles and Plans, the Committee announced the planned conclusion of the reduction in aggregate securities holdings in the SOMA at the end of September 2019.  Beginning in October 2019, principal payments received from agency debt and agency MBS holdings will be reinvested in Treasury securities via secondary market purchases subject to a maximum amount of $20 billion per month; any principal payments in excess of $20 billion will continue to be reinvested in agency MBS in a manner consistent with current practices.  The Treasury securities purchases will initially be conducted across a range of maturities to roughly match the maturity composition of Treasury securities outstanding.  The Desk will provide more details on these operations in May. 

Additional information on Treasury rollovers and agency MBS reinvestments can be found in Frequently Asked Questions in the following locations: 

FAQs: Treasury Rollovers »
FAQs: Agency MBS Reinvestment Purchases »