Thursday, April 17, 2008

demand for fed auction remains light

demand for the fed's treasury securities remained relatively light in today's opening of the fed's tslf, a facility used by dealers to obtain treasury securities in exchange for agency securities, agency mortgage-backed securities, and certain non-agency securities.

just $35.1 billion of bids were submitted, much less than for the first TSLF auction on 3/27, when $86.1 billion in bids were submitted. the small amount of bids for collateral at the TSLF auctions contrasts with still-high demand for credit by the nation's banks via the fed's taf. this might compel the fed to increase the size of the $100 billion TAF facility, which has been fully utilized.

the tslf is a $200 billion facility and hence has been underutilized. this could become more apparent next week, when $75 billion of the TSLF facility rolls off and is replaced by a smaller sum (each TSLF is for 28 days).

today's tslf was a Schedule-1 auction, which is for higher-quality securities. last week's was a Schedule-2 auction; the fed alternates between these types.

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