Tony Crescenzi
Chief Bond Market Strategist
Miller Tabak + Co

New intrigue will arrive in the late afternoon when the Fed releases its balance sheet, an exercise it does usually every Thursday at 4:30 p.m., but will instead do so today. There are a few things to look for:

1) Foreign central bank holdings of agencies: For the past 7 weeks, foreign central banks have sold U.S. agency securities bringing the Fed's holdings of these securities on behalf of foreign central banks down $93 billion to $891 billion. These sales coincided with a sharp widening in credit spreads between agency debt and Treasuries. The widening prompted the Fed to announce that it will begin purchasing $100 billion of agencies beginning next week. Yield spreads have tightened sharply since the announcement, helping to drive mortgage rates down and the stock market up.

2) The new MMIFF: On Monday the Fed began its Money Market Investor Funding Facility (MMIFF), which will provide up to $540 billion of funding to special purpose vehicles created by the Fed to purchase money market assets from money market mutual funds. The Fed believes that "by facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments."

For Bonds Investors:

• Treasury Yields Hit 50-Year Low in Safe-Haven Buying
• Financial Crisis Tab in Trillions—and Counting

3) Quantitative easing via T-bill redemptions: The Fed now appears to be engaging in several efforts to expand its balance sheet without a reliance upon either its existing assets (Treasury securities, for example), or any money from the Treasury. One such influential measure was this week's announcement that the Fed would purchase $100 billion of agency securities and $500 billion of mortgage-backed securities. Even a casual observer should ask: Where is the money coming from? The answer is the Fed's printing press. The Treasury said that it would stop selling supplemental T-bills, which were being used to fund many of the Fed's programs. Roughly $550 billion of these monies were raised through these sales and deposited at the Fed. All of the bills will mature by the end of January. In this respect it is important to gauge how much if any of the bill redemptions will be repaid (the Fed must repay the Treasury) through the Fed's existing assets or by printing new money. Most likely, globs of new money will be printed, the data are likely to show.

4) Signs of reduced dealer, bank stress: Recent data have indicated that banks and brokerages were no longer increasing their reliance upon the Fed for money. This is not to say they no longer need the Fed's lifeline--they surely do, just that the Fed may have finally sated the needs of the banking system for dollar funding, something that is readily apparent in the inter-bank market where funding rates have fallen sharply.

More: Click for Latest Economic coverage ...

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Tony Crescenzi is the Chief Bond Market Strategist at Miller Tabak + Co., LLC where he advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. Crescenzi makes regular appearances on financial television stations such as CNBC and Bloomberg, and is frequently quoted across the news media. He is also the author of the forthcoming book, "Investing from the Top Down," "The Strategic Bond Investor," and co-author of the 1200-page book "The Money Market." Crescenzi is a contributor to RealMoney.com."

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