The steady climb in Fed assets continues, with the left side of Bernanke’s balance sheet swelling to just under $2.5 trillion, as US Treasury holdings hit $1.13 trillion, implying that the Fed’s DV01 continues to increase on a daily basis with every single POMO, as we have been pointing out since last summer, and which the Fed decided to address last week by changing its “accounting” rules and guaranteeing its assets can never decline. The differential between the US and China is now $233 billion and rising. We expect our now second-largest creditor to realize the game theory balance of leverage (no pun intended) is shifting away from its favor (and to the Fed), and to respond accordingly. Alternatively, maybe someone will finally readjust the UK’s holdings to properly reflect what could very likely be simply Chinese debt accumulation.

All numbers as of December 26:

• Securities held outright: $2,224 billion, $18.5 billion more than the week prior.
  • Total Treasury holdings increased from $1.080 trillion to $1.129 trillion (inclusive of the last two days’ POMOs).
  • MBS declined by $15.1 billion. 
    
  • Agency holdings declined by $1.2 billion to $144.6 billion.
• Net borrowings: down to $25 billion.
• Float, liquidity swaps, Maiden Lane and other assets: $178 billion, $1 billion more than a fortnight ago. FX liquidity swaps were at $70 million as that one bank continues to borrow the same amount for 5 months now. The value of Maiden Lane I was $26.4 billion. Maiden Lane II was at $16 billion, Maiden Lane III at $22.4 billion, AIA Aurora has now been paid off. And it is perhaps important to note that only the Federal Reserve would have “Other Assets” of $115 billion.
• The monetary base was $2.050 trillion.
• Reserve balances with banks: $1083 billion, an increase of $65 billion from last week. With assets increasing rapidly, it was about time this lagging liability category caught up.
• Foreign holdings of USTs and MBS increased by $5 billion to $3.353 trillion.

One thing to highlight in the data above:

• After stagnating for a while, the MBS prepay has picked up again, and last week saw a cumulative $16.3 billion in MBS being put back to the Fed. This brings the total to $184 billion since the start of QE Lite. The last month’s total MBS/agency prepay amounts to $30 billion which means that the Fed has an incremental $30 billion in Treasurys to purchase per the QE Lite mandate, although still run rates at less than the $2-300 billion the Fed hopesto achieve to get to $900 billion in bond purchases. As the MBS total on the Fed’s balance sheet declines, it means there is an ever greater probability of MBS purchases being part of QE3.

And, as usual we end with our favorite chart, showing total UST holdings by the top 5 world institutions.