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Permanent Open Market Operations Treasury: Frequently Asked Questions
Effective March 24, 2009
What is the policy objective of the Federal Reserve’s program to purchase up to $300 billion of longer-dated Treasury securities? The goal of the longer-dated Treasury purchase program is to help improve conditions in private credit markets.
What Treasury securities will the Federal Reserve’s Open Market Trading Desk (“the Desk”) purchase? The Desk will concentrate purchases in the 2- to 10-year sectors of the nominal Treasury curve, although purchases will occur across the nominal Treasury and TIPS yield curves. The Desk will refrain from purchasing those securities trading with heightened scarcity value in the repo market for specific collateral, those securities maturing within five weeks, and those securities which are cheapest to deliver into the front-month Treasury futures contracts. Specific issues that will be excluded from consideration will be announced at the start of each operation. Currently, the Desk does not plan to purchase Treasury bills, STRIPS, or securities trading in the when-issued market.
Who is eligible to sell Treasury securities to the Federal Reserve under this program? Primary dealers are eligible to transact directly with the Federal Reserve. Dealers are encouraged to submit offers both for themselves and their customers.
How long will the program be in place? Purchases of up to $300 billion in longer-dated Treasury securities will be made over the next six months.
Has the Federal Reserve changed its 35 percent per issue limit in light of this program announcement? No, the System Open Market Account’s current per issue limit for Treasury holdings remains at 35 percent. The Desk will reevaluate this decision as needed.
Will the Federal Reserve lend the Treasury securities it purchases through this program? Yes, Treasury securities purchased through this program will be available to borrow through SOMA’s securities lending facility.
Will these operations be reserve neutral? No, these operations will be financed through the creation of additional bank reserves.
How will the purchases be conducted? Consistent with its prior outright purchases of Treasury securities, the Desk will arrange these purchases with the Federal Reserve Bank of New York’s primary dealers through a series of multiple-price competitive auctions using the Desk’s FedTrade system.
How often will the Desk conduct operations to purchase longer-dated Treasuries? In general, the Desk will aim to conduct 2 to 3 operations per week.
As mentioned in the tentative operation schedule, released on March 24, 2009, the first operation will occur on Wednesday, March 25, 2009. The announced tentative operation schedule covers operations through Friday, April 3, 2009.
Starting on Wednesday, April 1, 2009 and continuing every other Wednesday, the Desk will release a tentative operation schedule, including the maturity sector(s) to be targeted, for the following two calendar weeks.
How many offers can a dealer submit during an operation? Dealers are limited to five offers per issue.
What is the minimum amount for which a dealer may submit offers? The minimum offer size is $1 million, with a minimum increment of $1 million.
How will the Desk communicate the operation results? Operation results will be posted on the New York Fed website following each operation. The information posted will include the total amount of offers received, total amount of offers accepted, and the amount purchased per issue. Consistent with the Desk’s prior outright purchases of Treasury securities, pricing information related to transactions will not be disclosed.
In addition, participating dealers will receive the operation results, including their accepted propositions, via FedTrade.
Whom do dealers call if they experience difficulties during the operation? Primary dealers may call the New York Fed Trading Desk with submission and verification questions. For system related problems, dealers may call New York Fed Primary Dealer Support at 877-376-9837.
When and how does settlement take place? Securities settlement will occur on a T+1 basis, i.e. one business day after the day of the operation, via the Fedwire Securities System.