dealers again say "no thanks" to fed

for the third week in four, wall street's primary dealers sought fewer of the fed's treasury holdings than were made available by the fed in its weekly opening up of the term securities lending facility.

today's was the first undersubscribed auction of $25 billion of securities, the smallest of the fed's offerings, which have been between $25 billion and $75 billion. this is good news to the extent that it shows that dealers are not feeling as pressed to swap their mortgage securities for the fed's treasury securities. dealers do this as a way of more readily liquefying their collateral.

in the latest week, the fed offered $25 billion of securities, but dealers submitted requests for just $24.12 billion, producing a cover ratio of just 0.96. in the fed's last $25 billion offering two weeks ago, $35.1 billion of requests (bids) were submitted, for a cover ratio of 1.40. four weeks ago, the fed's $25 billion offering was accompanied by $46.9 billion in bids, for a cover ratio of 1.88.

additional evidence of reduced dealer stress is apparent in the fed's weekly release of data on its primary dealer credit facility, which was created in response to the bsc problem. at the peak, the facility had lent $34.4 billion to dealers. a week ago (the fed releases these data every thursday at 4:30 p.m. in its H.4.1 release that accompanies money supply data), the fed reported having only $18.6 billion of loans outstanding to dealers.