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Fed Purchase of Bank Treasury Bonds/QE

I always read statements about QE which make it sound as if the Fed is forcing banks to sell T-Bonds. Can you explain why banks exchange their interest yielding bonds for non-interest earning (or low interest earning accounts) and is the Fed able to "pressure" banks to sell?

Hi @TEAMTOMAHAWK,

The Fed is basically a huge market maker. So, they're just ordering the Primary Dealers to act as middlemen in the T-Bond market. So they're able to take supply off the market just by being the primary buyer via the market. Primary Dealers are required to make markets for the Fed.

 

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

But this makes it seem as if banks normally want to divest themselves of longer-term treasury assets but there aren't sufficient # of buyers willing to step up and only at the point that the Fed says "okay dealers, step in and buy now" are the banks able to sell all the T-bonds they wish to sell. I still don't feel as if I get this.

Banks do mostly sell their bond holdings. They don't like the directional price exposure. So the Fed and PDs mostly act as middlemen. Banks are just market makers for the most part.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Thanks Cullen....