Q2 Z.1: The Fed Strikes Back

​The Federal Reserve recently released its quarterly Z.1 report: The Financial Accounts of the US (formerly known as the Flow of Funds) for Q2 2020. This voluminous dataset contains very detailed information describing financial flows and stocks across all major segments of the economy. For our purposes the key chart is the distribution of holdings of Total Long-Term Agency Debt (Agency MBS + Agency notes and bonds):

The clear takeaway for Q2 is the central bank gained share as it took unprecedented actions to stabilize the financial system in the wake of the Covid-19 crisis. The Fed’s share of the stock of Long-Term Agency Debt jumped by about 4.9% from Q1 to Q2, a record high increase. The biggest losing category was “Others” which fell by 3.6%. This loss came largely from the household subsector within this category. The “Commercial Banks” share rose by 0.9%, but this does not necessarily imply greater appetite for mortgage risk as depositories are increasing their securitization rate by swapping whole loans for securities[1]. Finally, the “Foreign Investor” category lost 0.5% to a 7-quarter low.

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[1] https://www.recursionco.com/blog/banks-hang-on-to-mortgages-but-reduce-risk