After a few months of warming up with $47.5B monthly reductions, the Fed was going to step up in September and shrink by $95B ($60B in Treasuries and $35B in MBS).

That didn't happen.

Breaking Down the Balance Sheet

In the prior four months, the Fed only hit the $45B target a single time – last month. It should be no surprise then that September fell woefully short of the target, seeing only a $31B reduction. Even this meager run-off has created chaos in the Treasury market with the yield curve seeing pronounced volatility in recent weeks. Given the environment, how long until the Fed follows in the BoE footsteps and re-enters the market, using "crisis mode" as the excuse? Given the mathematical impossibility the Treasury faces in the months ahead, it won't be too long!