The SRF did its job. Month-end repo market turmoil, exacerbated by effects of the government shutdown, has settled down.

By Wolf Richter for WOLF STREET.

QT ends on December 1, but until then, it continues. The QT assets of Treasury securities and MBS declined by $20 billion combined in October, as per the Fed’s weekly balance sheet today. In addition Unamortized Premiums declined by $2 billion, for a total of $22 billion. The SRF had a zero balance, same as the month before, as the turmoil last week has settled down.

But “other assets,” rose by $8 billion due to accrued Interest, an accounting entry that has been flipping up and down on a quarterly cycle within the same range for five years (more in a moment).

All combined, the total balance sheet declined by $14 billion (-$22 billion +$8 billion) to $6.57 trillion. Since the peak of its balance sheet in April 2022, the Fed’s QT has shed $2.39 trillion, or 26.7% of its total assets. Since the reduced pace of QT began in June 2025, the balance sheet has declined on average by $20 billion per month.

QT assets.

Mortgage-Backed Securities (MBS): -$16 billion in October, -$670 billion (-24%) from the peak, to $2.07 trillion, where they’d first been in December 2021.

Even after QT ends, MBS will continue to come off the balance sheet until they’re gone, and will be replaced by Treasury bills (mature in one year or less).

The Fed holds only “agency” MBS that are guaranteed by the government (issued by Fannie Mae, Freddie Mac, Ginnie Mae), where the taxpayer would eat the losses when borrowers default on mortgages.

MBS come off the balance sheet primarily via pass-through principal payments that holders receive when mortgages are paid off (mortgaged homes are sold, mortgages are refinanced) and as mortgage payments are made. But sales of existing homes have plunged and mortgage refinancing has also plunged, and far fewer mortgages got paid off, and passthrough principal payments to MBS holders have slowed to a trickle.

As a result, ever since QT started, MBS have come off the Fed’s balance sheet at a pace that has been mostly in the range of $15-19 billion a month. The MBS runoff is no longer capped.

Treasury securities: -$4 billion in September, -$1.59 trillion (-27.4%) from the peak in June 2022, to $4.19 trillion.

The $4 billion decline was in line with the $5 billion a month pace of QT for Treasuries, the difference being the inflation protection the Fed earned on its holdings of Treasury Inflation Protected Securities (TIPS), which is added to the principal of the TIPS, instead of being paid in cash.

Bank liquidity facilities:

• Standing Repo Facility (SRF) had a zero balance again, after the turmoil last week in the repo market, see below.
• Central Bank Liquidity Swaps ($0.0 billion)
• Discount Window: no change, balance at $7.1 billion.

The SRF: The Fed has been exhorting its approved 40 or so counterparties, all of them big banks or broker-dealers, to use its new SRF, implemented in July 2021, to borrow at it via repos overnight and to lend to the repo market overnight when yields in the repo market rise above the rate at the SRF (4.0% currently).

Last week, there was turmoil in the repo market as month-end liquidity pressures met with the government shutdown, which caused the government’s checking account at the Fed, the TGA account, to swell with cash that wasn’t getting disbursed. And within a couple of weeks, this sucked $200 billion in liquidity out of reserves and money markets, and repo market yields began to spike.

Banks stepped in and borrowed at the SRF and lent to the repo market to profit from the spread. On October 31, Friday, the SRF balance spiked to $50 billion.

These are overnight repos that unwind the next business day, when the Fed gets its money back and the banks get their collateral back.

On Monday, that $50 billion got unwound, and banks took up a new $22 billion, which got unwound on Tuesday, and banks took up a new $5 billion in repos, which got unwound on Wednesday, and no repos were taken up on Wednesday and the balance was zero, as by then repo market rates had dropped well below the SRF rate, and today, the balance was also zero with no activity. And the repo market has calmed down. The SRF had done its job.

I discussed this in detail on Tuesday, including charts of the repo market rates, here.

The Discount Window: Essentially no change in October, at $7 billion. The Fed has been exhorting banks to use its Discount Window, or at least get set up to use it and pre-position collateral so that they can use it to help manage their daily liquidity needs.

What else…

“Unamortized premiums”: –$2 billion in October, to $228 billion.

With these regular accounting entries, the Fed writes off the premium over face value it had to pay for bonds during QE that had been issued earlier with higher coupon interest rates and that had gained value as yields dropped before the Fed bought them. Like all institutional bondholders, the Fed amortizes that premium over the life of the bond.

“Other assets”: +$8 billion to $44 billion. This $8 billion consisted mostly of accrued interest from its bond holdings. The Fed set up the accrued interest as a receivable (an asset) in October that will be paid in November, at which point the Fed destroys that money, and the balance drops again.

This account fluctuates up and down on a quarterly cycle, on these interest accruals and interest receipts, but has stayed in the same range for five years. The peak of the current cycle will be next week, after which this account balance will plunge back to the bottom of the range, and this plunge will show up here on my monthly update on Thursday December 4.

The Fed doesn’t have a “cash” account, like companies do; it creates money when it pays for something and destroys money when it gets paid, and so when it gets paid the interest, it destroys that money, and the balance sheet drops by that amount.

This account of “other assets” also includes “bank premises” and other accounts receivables and will always have a balance.

Fed’s balance sheet compared to GDP. 

Powell talked about this when he discussed the end of QT during the press conference after the October FOMC meeting: the size of the balance sheet as a percent of GDP. He said it was one of the indications that it was time to end the asset roll-off.

The balance sheet has always grown as a function of cash in circulation and more broadly as a function of the size of the economy and the banking system.

But the structure of the balance sheet changed during the Financial Crisis because the Treasury Department’s checking account was moved from private sector banks to the Federal Reserve Bank of New York. This Treasury General Account at the Fed is a liability on the Fed’s balance sheet. As a balance sheet always balances, this means that assets had to grow with it over the years. There are currently $943 billion in the TGA. The addition of the TGA during the Financial Crisis has permanently increased the size of the balance sheet.

The Fed-assets-to-GDP ratio dropped to 21.6% in October, where it had first been in Q3 2013. If the Fed holds the balance sheet flat for some time after QT ends as the economy grows, this Fed-assets-to-GDP ratio will drop further (total assets divided by “current dollar” GDP).

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WOLF STREET FEATURE: Daily Market Insights by Chris Vermeulen, Chief Investment Officer, TheTechnicalTraders.com.