Thursday, November 4, 2010

Fed is Literally and Figuratively "Printing Money"

One aspect of quantitative easing that many may have missed is just how much money the Fed is set to make off these programs.

Last March the Fed starting their $1.25 TRILLION program of purchasing Agency MBS. For an entity that can borrow on the cheap (i.e. free) the returns have been spectacular.

The latest program is basically doing what banks have been doing for ages... borrowing short, lending long.

How much can be made?

The Fed's statement provides details of their purchases (here NY Fed). Using the current yield levels to determine an estimate yield of their Treasury purchases, an estimated yield of 1.2% - 1.6% seems likely.

Quick and dirty math = the Fed is getting PAID

Source: NY Fed