Purchases of Treasury securities increase the quantity of reserve balances in the banking system; sales or maturities of Treasury securities reduce those balances. These transactions, which are conducted by the New York Fed's Open Market Trading Desk (the Desk), are executed with primary dealers.
As directed by the FOMC, the Desk purchases Treasury securities to maintain an ample supply of reserve balances in the system and to reinvest principal payments from agency debt and agency mortgage-backed securities (MBS) holdings in the SOMA portfolio. In addition, the Desk rolls over maturing Treasury security holdings in the SOMA portfolio by replacing maturing holdings with securities obtained at Treasury auctions at the competitive auction price. Details are outlined in the most recent operating policy statement. Additional information is available in our Frequently Asked Questions on purchases and rollovers.
Historically, the Desk purchased securities outright in the secondary market as needed to keep pace with the amount of currency in circulation—traditionally the Federal Reserve's largest liability—which increased over time as the economy grew. From the end of 2008 through October 2014, the Federal Reserve greatly expanded its holdings of longer-term Treasury securities and purchased U.S. government agency debt and agency MBS through its large-scale asset purchase programs.
The New York Fed also provides limited transaction services, including purchases and sales of Treasury securities, to its official sector account holders. These include about 200 central banks, governments, and official institutions, many of whom do not have in-house capacity to conduct trading activity in the Treasury market.