EFTA01459047.pdf

This is especially true if the Fed decides to taper its reinvestment policy and this leads to a tightening of financial conditions The size of the Fed's balance sheet is currently kept constant via the • The Fed is currently reinvesting proceeds from its reinvestment of maturing assets maturing securities keeping its balance sheet stable • Altering this reinvestment policy would equate to a monetary policy tightening NIBS - Fed can stop, or more likely taper reinvestments - Opposite effect to QE, i.e., higher long-term TreasuIles rates • As such, the decision and the tightening of financial conditions it would bring about may affect the Fed's 41. Some: Never Anelpics. Deutsche Bank Research ti~ 41, rt9. Nt* Nc) assessment of the pace of rate hikes - At $300-500bn per year through 2019, the A wave of maturities from the Fed's portfolio could put upward amount of maturing securities is considerable pressure on long-term rates when the Fed stops reinvesting • The Fed has so far given little guidance on when or $bn Fixed income market will have elm Annual maturities (Is) $bn how this will happen 600 to absorb a tot more when Fed ‘Atl:.9s reinvestment -Cumulative maturities (rs) - 4,000 - Fed would like to be confident that economy is 400 3,000 weathering rate hikes well 2,000 200 -I I • We expect Fed to begin reducing its reinvestment 1,000 some time in the second half of 2016 1.. 0 20153016 2017 2018 2019)2020 2021 2022 2023 2024 2025 Note: projections based on a speech by the Fed's Stankry Fischer in February 2015 Source: Fischer (2015). FRBNY. Deutsche Bank Research Deutsche Bank 10 Res:sap:A, 1.5.7e! CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0 119257 CONFIDENTIAL SDNY_GM_00265441 EFTA01459047