Here is a quick follow-up to an earlier post discussing the Fed's diminishing short-term treasury note position. The Fed is basically running out of the 2-3 year notes to sell in order to buy long-term treasuries as part of Operation Twist (officially known as Maturity Extension Program or MEP). BofA is projecting that by the time of the FOMC meeting this month, the Fed will have $175bn of short-term treasuries on its balance sheet. That's enough to extend Operation Twist only through September. Beyond that point the Fed is likely to embark on sterilized purchases (possibly MBS) in order to extend the easing program.
|Source: BofA via Bianco Research|