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I understand the Fed has been letting its treasury securities mature without reinvesting in new ones, but does the Treasury actually pay the Fed the principal? That is, does the Treasury's reserve balance decrease at the Fed by the amount owed in principal payments without anyone else's balances increasing?

I ask because I'm aware that the Fed returns interest payments back to the Treasury, and I just want to make sure the same isn't done with principal payments.

In other words, do maturing treasuries at the Fed cause the total number of deposits at the Fed to shrink?

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The balance sheet slightly increased recently, but the general trend has been toward smaller. You can see the balance sheet (and other great data) on the website for the St. Louis Federal Reserve: https://fred.stlouisfed.org/series/WALCL

Edit: Yes, the fed receives the principal payments. Otherwise, the Fed would have large losses on the purchases. The Fed remits profits to the treasury. For example, if the Fed bought a coupon bond for $99, the Fed would receive $100, but only $1 would be profit (plus coupon payments).

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  • I figured that was the case but couldnt find any explicit answer online. It's a bit like the Fed is loaning to itself to buy the bonds then.
    – Jonah
    Sep 25, 2019 at 1:13

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