The drop in the week ended July 1 amounted to $73.2 billion, and was just shy of the decline recorded two week prior, which was the biggest weekly drop since May 2009.

However, as has been the case in the past three weeks, the drop in the balance sheet was not due to a reversal or even slowdown in QE which continues almost every single day, with the Fed adding another $15.8 billion in Treasurys even as the settlement calendar and prepays meant MBS shrank by $32 billion in the week ended July 1 (don't worry, the Fed is also buying about $4.5BN in MBS every day), but once again due to a decline in liquidity swaps, which shrank by $49.5 billion to $225.4 billion, after a $77.5 billion in the week prior and $92 billion in the week before that.