The Federal Reserve’s H.4.1 release this past Thursday confirms what liquidity-watchers have suspected: the “Reserve Management Purchases” (RMP) program is now the primary driver of market plumbing.
Total assets on the Fed’s balance sheet rose by $23 billion in February, bringing the total to $6.63 trillion. Since the RMP program launched in early December, we’ve seen a net increase of $93 billion in total assets.
The Great Rotation: MBS out, Bills in
The most striking trend in this week’s data is the aggressive rotation of the Fed’s portfolio.
- U.S. Treasury Bills: Rose by $15.9 billion in a single week, now totaling $337 billion.
- Mortgage-Backed Securities (MBS): Fell by $9.5 billion, dropping to $2.01 trillion.
The Fed is effectively shortening its duration. By replacing long-term mortgage debt with short-term T-bills, they are injecting a specific kind of high-velocity liquidity into the financial system while simultaneously stepping away from the housing market.
Why It Matters
With Overnight Reverse Repos (ON RRP) effectively at $0 billion, the Fed must now actively manage reserve balances to prevent a “taper tantrum” in the repo markets. Reserve balances rose by $83 billion since December, currently sitting at $3.02 trillion.
As we look toward mid-April, the current $40 billion monthly T-bill purchase pace is expected to be reduced. Market participants should watch the $3 trillion reserve level closely; any dip below this could signal the return of repo market volatility that hasn’t been seen since the pre-QT era.
Axe-Sharpened Take
The “ghost” of QT is gone. We are now in a “stealth expansion” phase where the Fed is manually tuning the engine with $40B T-bill injections. Watch the H.4.1 every Thursday—liquidity is the only signal that matters in this environment.
Disclaimer: This analysis is for informational purposes only and does not constitute financial advice.