Thursday, March 20, 2008

more late-day fed moves

awhile ago, the fed expanded the types of collateral it would be willing to accept at the $200 billion term securities lending facility (tslf) it announced on 3/11. at the same time, the fed announced that the first auction for a loan of treasury securities will total $75 billion.

in today's announcement, the fed said it would also accept agency collateralized-mortgage obligations (CMOs) and commercial mortgage-backed securities. this is in addition to federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. the decision was made after consultation with the dealer community.

the timing of the announcement is curious, to say the least. it came late in the afternoon on the final trading day of the week--when the market is up no less. the fed may not have had an eye towards market reaction, but it's a clear positive as it has inflicted a bit more pain on the short base and forewarned speculators that anytime, anywhere the fed might take action that works against spec shorts.

the best time for intervention of this sort is when the market is already moving in the desired direction. it is the same in the foreign exchange market where the worst time for intervention is when the targeted currency is at its lowest levels.

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