On May 4, 2022, the Federal Open Market Committee (FOMC) decided to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities (MBS) on June 1, 2022, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet. The FOMC directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to reinvest principal payments from securities held in the System Open Market Account (SOMA) to the extent that they exceed monthly caps.
The schedule of monthly caps consistent with the FOMC’s May 4 decision is as follows:
|TOTAL MONTHLY CAPS ON SOMA SECURITIES REDUCTIONS|
|Treasury Securities||Agency Debt and Agency MBS|
|Jun-Aug 2022||$30 billion||$17.5 billion|
|From Sep 2022*||$60 billion||$35 billion|
For Treasury securities, the cap will initially be set at $30 billion per calendar month and after three months will increase to $60 billion per month. The decline in holdings of Treasury securities under this monthly cap will include Treasury coupon securities and, to the extent that coupon maturities are less than the monthly cap, Treasury bills. The Desk will roll over at auction the amount of principal payments from SOMA holdings of Treasury securities maturing during each calendar month that exceeds the cap amount for that month. Consistent with current practice, the Desk will allocate Treasury coupon rollover amounts across the month’s coupon maturity dates in proportion to total SOMA coupon maturities on each date. The Desk will separately allocate bill rollover amounts across the month’s bill maturity dates in proportion to total SOMA bill maturities on each date. Rollovers will continue to be accomplished by placing non-competitive bids at Treasury auctions; the bids will be allocated across the securities being issued on each auction date in proportion to their announced offering amounts. The initial cap will first be applied to the June scheduled maturities.
For agency debt and agency MBS, the cap will initially be set at $17.5 billion per calendar month and after three months will increase to $35 billion per month. The Desk will reinvest into agency MBS the amount of principal payments from SOMA holdings of agency debt and agency MBS received during each calendar month that exceeds the cap amount for that month. Consistent with current practice, the Desk’s reinvestment purchases will continue to be concentrated in recently produced coupons in 30-year and 15-year fixed rate 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. The initial cap will first be applied to the principal payments received during the calendar month of June. The planned amount of reinvestments will be announced on June 13, the ninth business day of the month.
Additional information on Treasury rollovers and agency MBS reinvestments can be found in Frequently Asked Questions in the following locations: