Interesting disclosure in the footnotes to the Fed's H.4.1 report titled "Factors Affecting Reserve Balances" which some colloquially refer to as the Fed's "Balance Sheet".
The Treasury and Agency securities that the Fed holds and corresponding footnotes read:
Securities held outright (1) 2,630,907 + 12,108 + 13,312 2,668,891
U.S. Treasury securities 1,661,520 + 5,631 - 10,011 1,660,807
Bills (2) 0 0 - 18,423 0
Notes and bonds, nominal (2) 1,577,099 + 5,426 + 1,067 1,575,114
Notes and bonds, inflation-indexed (2) 73,543 + 199 + 6,059 74,740
Inflation compensation (3) 10,878 + 6 + 1,285 10,953
Federal agency debt securities (2) 79,283 0 - 26,626 79,283
Mortgage-backed securities (4) 890,104 + 6,477 + 49,950 928,801
The corresponding footnotes:
1. Includes securities lent to dealers under the overnight securities lending facility; refer to table 1A.
2. Face value of the securities.
3. Compensation that adjusts for the effect of inflation on the original face value of inflation-indexed securities.
4. Guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. Current face value of the securities, which is the remaining principal balance of the underlying mortgages.
So the Fed carries these securities NOT at "Market Value" and NOT at "Par Value" but at "Face Value". It would also seem that this value is not necessarily the same as the amount that the Fed originally pays for the securities they buy with newly created reserve balances.
For instance, if the Fed pays 100.5 for a US Treasury security with a Face Value of 100, this disclosure makes me believe that they would "book" the securities at 100 on the H.4.1 report and then do an non-directly-related reserve drain of 0.5 in order to result in the Factors balancing out with the new system reserves of 100.
This is perhaps why the Fed seems to buy most recently issued securities in it's "QE" type of operations as those securities would be priced more closely to the Face Value and would require less reserve level adjustments in order to position these amounts on it's Factors report at Face Value, i.e. NOT "Prices Paid" or "Market Value".
See Note 4 in this document for further information.
When you hear loose talk from the morons based on the reasoning of "the Fed can't raise interest rates and remove reserves because the drop in value of their bonds will render them insolvent, their stuck... blah, blah, blah...", as usual don't listen to them. This is apparently NOT the "way it works".
The Fed can certainly raise interest rates at any time without any direct effect on the Factors. And they can concurrently reduce the Factors as well via the normally scheduled US Treasury redemptions and normal MBS prepayments, which to the Fed, effectively result in a "Reserve Drain".
These operations will not cause any negative effects on the Fed's so-called "Balance Sheet".
To the Fed, it's all about interest rate setting; reserve drains, and reserve adds.
That these 3 monetary activities don't have much to do with US macro-economic performance is another story...