Fed Bond Portfolio (SOMA)

Think of it this way

It is the central bank's bond warehouse. When the warehouse fills up, it is because the Fed created new money to buy what is inside. When it empties, that money is being destroyed.

What is Fed Bond Portfolio (SOMA)?

SOMA is the portfolio of Treasury bonds and mortgage-backed securities owned by the Federal Reserve. When the Fed buys bonds, it creates new money out of thin air to pay for them: that is quantitative easing, or QE. When it lets bonds mature without reinvesting, that money is destroyed: that is quantitative tightening, or QT.

How to read Fed Bond Portfolio (SOMA)

The line rises during QE programs (2020-2021 was vertical) and falls slowly during QT. What is relevant is the slope, not the level. A flat slope means the Fed is reinvesting everything that matures and the balance sheet is no longer shrinking. Lag: none, or +15 days at most: the cash is already in the accounts.

What Fed Bond Portfolio (SOMA) means for the market

It is the real thermometer of balance sheet monetary policy, far more informative than headlines. The big QE cycles have coincided with the largest rallies in bitcoin and stock markets; QT cycles have coincided with tougher markets. Note: the relationship is real but neither mechanical nor immediate.

Where the money flows

From the Fed to whoever sells it the bond, and permanently. When the Fed buys a bond from a pension fund, it pays with money it creates at that very moment: the fund finds new cash in its bank, and that bank finds more reserves at the Fed. In QT the opposite happens: the Treasury repays the principal of a maturing bond, the Fed collects it and that money simply ceases to exist.

What to watch in Fed Bond Portfolio (SOMA)

Measure the slope with the ruler tool between two points a month apart and compare it with the cap the Fed announced. If the actual decline is smaller than the cap, there is hidden reinvestment and QT is milder than the headlines say. And when the slope flattens out to horizontal, the Fed has stopped shrinking even if it has not announced it.

If SOMA rises there is QE (money is created); if it falls there is QT (money is destroyed).