First ... when the Fed did QE, it bought bonds. When they started QT last spring, they let bonds mature (not sold).
This activity make changes the Fed's balance sheet.
On Dec 28 the Fed balance sheet was $8.55T. Of this, $8.04T was bonds, detailed below.
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This $8.04T of bonds all pay a coupon. The Fed uses this income to pay RRP and interest on reserves. What is left over is returned to the the Treasury as a "remittance."
Here is the official amount they have remitted back to Treasury, over $1 trillion since 2011.
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By the way, the Fed has an official annual audit done by KPMG.
Here is the 2021 version that includes lots of detail about the remittances, if anyone wants to nerd out on this topic.
Some really long-term US charts to put 2022 into perspective.
A truly historic year was just completed!
Start with nominal (before inflation) US bonds total returns, the worst year in 230 years!
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On a real (after inflation) basis, 2022 was even worse!
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CRSP’s index of over 4000 U.S. stocks was down 19.49% in 2022. This ranks as the eighth worst year since 1793. On average, stocks returned 10.82% in the year following the previous seven instances of losses of this magnitude.
The final results for a year unlike any other in the bond market.
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The Bloomberg Global Aggregate Index suffered more than the US Domestic Aggregate index above.
Blame the strong dollar for hitting 46% of the non-dollar bonds in this Global Aggregate Index more than the 54%-dollar bonds (and 100%-dollar bonds in the US Aggregate Index).
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BofA has recreated this series similar to the Global Aggregate Index above and reversed engineered it back to 1700(!).
2022 was the worst year in the last 104 years, only trailing 1720, 1865, and 1920.
Enjoy the long New Year’s weekend. History suggests mkts come roaring out of the gate as the year begins.
A 🧵to detail
(The following charts show the median absolute percentage change by day or calendar week. IOW, how much does the market move, regardless of direction?)
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The first day of the year is historically the most volatile day for the S&P 500, with a median absolute change of 0.82%.
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A similar pattern emerges when looking at median absolute changes by CALENDAR week.
The overwhelming Wall Street consensus call for 2023 is higher commodity prices (especially crude oil) and lower inflation, leading to a Fed pivot, causing risk markets to soar in 2H 2023.
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Underpinning this call is China reopening >demand for raw materials (especially crude as zero-COVID <demand by 2m/d), which will be turned into waves of finished goods flooding world markets, depressing supply-driven inflation (or supply-driven deflation from too much stuff)
An annual Christmas market held at the Bund, a commercial district in Shanghai, was popular with city residents over the weekend. Crowds thronged the winter festive season at Shanghai Disneyland
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This chart shows metro traffic. It shows the opposite.
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Reuters again:
trips to scenic spots in the southern city of Guangzhou this weekend increased by 132% from last weekend, a local newspaper reported.
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Sure, traffic is up 132% from last month, but down in the last few weeks and WAY OFF the 9M when fully open.
The rest of this 🧵offers a reason why they had to move.
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The top panel of the chart below shows the yield of Japanese government bonds that mature between 2029 and 2035. The bottom panel shows the percentage of each bond the Bank of Japan owns.
This chart is dated yesterday (Dec 19), the day before the BoJ widened the band.
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The red dots above are the 3 bonds the BoJ targets in the 10-year range.
They were out of line with the rest of the yield curve around them. Also, note the high % the BoJ owns of them.
Effectively the BoJ did not have yield curve control. It had control over just 3 bonds.