The following frequently asked questions (FAQs) provide further information about the Federal Reserve's secondary market purchases of Treasury securities.
How does the Desk intend to implement the FOMC’s plan to purchase Treasury securities?
Effective March 23, 2020, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) to increase the System Open Market Account (SOMA) holdings of Treasury securities in the amount needed to support the smooth functioning of the Treasury market. The Desk will begin purchases on Monday, March 23, 2020. These plans replace the Desk’s previously communicated plans for Treasury purchases of at least $500 billion over coming months. For the most recent Desk Statement regarding purchases, see: https://www.newyorkfed.org/markets/opolicy/operating_policy_200323.
What factors might drive a change in the timing or amount of Treasury purchases?
As part of the FOMC directive effective March 23, 2020, the Committee instructed the Desk to conduct Treasury purchases in an amount needed to support the smooth functioning of the Treasury market. The size and composition of operations will be adjusted as needed to foster smooth Treasury market functioning and efficient and effective policy implementation.
How will the Desk communicate the amount of its Treasury purchase amount and schedule?
The planned amount of purchases will be communicated on the Treasury Securities Operational Details page. Initially, the Desk plans to communicate its upcoming purchase plans for the next business day at or around 4:30 pm; however, it plans to begin releasing a tentative schedule of operations on a regular basis soon thereafter. The operation schedule and parameters are subject to change if market conditions warrant or should the FOMC alter its guidance to the Desk.
What Treasury securities will the Desk purchase?
The Desk will conduct purchases across a range of maturities and security types to support smooth market functioning, with the intention that purchases will eventually be conducted roughly in line with the composition of Treasury securities outstanding. Purchases may be conducted in nominal coupon securities, bills, Treasury Inflation-Protected Securities (TIPS), and Floating Rate Notes (FRNs).
The Desk’s purchase schedule will communicate the specific security type and maturity range of each operation in advance. The Desk will refrain from purchasing securities that are trading with heightened scarcity value in the repo market for specific collateral, newly issued nominal coupon securities, and securities that are cheapest to deliver into active Treasury futures contracts. Between March 13, 2020 and April 17, 2020, securities that were cheapest to deliver into active Treasury futures contracts were considered eligible for purchase in order to support smooth market functioning in these and off-the-run securities more broadly amid heightened volatility and demand for liquidity. Historically, the Desk has excluded securities that are cheapest to deliver into active Treasury futures contracts given investor demand for these securities.
Additionally, the Desk will not purchase securities with 4 weeks or less to maturity and TIPS with one year or less to maturity. 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 STRIPS, securities trading in the when-issued market, or cash management bills.
What are the limits on the SOMA holdings of any one Treasury issue?
The Desk will limit SOMA holdings to a maximum of 70 percent of the total outstanding amount of any individual Treasury security.
What is the maximum amount the Desk will purchase in each issue?
In order to slow the rate of purchases for securities in which the SOMA portfolio already has large holdings as a proportion of Treasury securities outstanding, the Desk will allow the share of SOMA holdings of an individual Treasury security to rise above certain levels only in modest increments, as specified in the tables below. Subject to market conditions, the Desk may further limit the size of additional purchases in certain issues or otherwise change the stated limits as needed.
For nominal coupons, TIPS, and FRNs, the Desk will allow the share of SOMA holdings of an individual Treasury security to rise above 35 percent in increments, as shown below.
| Purchase Limits for Nominal Coupons, TIPS, and FRNs | ||
SOMA Security Ownership Prior to Operation as a Percentage of Outstanding |
Maximum Purchase Amount per Security in Operation is the Lesser of (A) or (B): | |
| (A) | (B) | |
| 0-30% | N/A | (35% of Outstanding) minus SOMA Holdings |
| 30%-47.5% | 5% of Outstanding | (50% of Outstanding) minus SOMA Holdings |
| 47.5%-59% | 2.5% of Outstanding | (60% of Outstanding) minus SOMA Holdings |
| 59%-70% | 1% of Outstanding | (70% of Outstanding) minus SOMA Holdings |
| Above 70% | Not Eligible for Purchase | |
For bills, the Desk will allow the share of SOMA holdings of an individual Treasury security to rise above 17.5 percent in increments, as shown below. These limits will support market functioning and operational efficiency by smoothing the distribution of bill holdings and maturities within the SOMA portfolio.
| Purchase Limits for Bills | ||
SOMA Security Ownership Prior to Operation as a Percentage of Outstanding |
Maximum Purchase Amount per Security in Operation is the Lesser of (A) or (B): | |
| (A) | (B) | |
| 0-15% | N/A | (17.5% of Outstanding) minus SOMA Holdings |
| 15%-34% | 2.5% of Outstanding | (35% of Outstanding) minus SOMA Holdings |
| 34%-59.5% | 1% of Outstanding | (60% of Outstanding) minus SOMA Holdings |
| 59.5%-70% | 0.5% of Outstanding | (70% of Outstanding) minus SOMA Holdings |
| Above 70% | Not Eligible for Purchase | |
Will the Federal Reserve lend the Treasury securities it purchases?
Yes, Treasury securities purchased will be available to borrow through the SOMA’s securities lending facility. For more information on SOMA Securities Lending, please see: https://www.newyorkfed.org/markets/sec_faq
How are SOMA holdings of Treasury securities reported?
SOMA Treasury holdings are reported on a weekly basis in the H.4.1 statistical release. Over any period, changes in the H.4.1 line item "U.S. Treasury securities" reflect the net effect of rollovers, purchases, and sales of Treasury securities, as well as movements in inflation compensation. For a full list of SOMA holdings, please see https://www.newyorkfed.org/markets/soma/sysopen_accholdings
The Federal Reserve Bank of New York’s primary dealers are eligible to transact in these operations directly with the Federal Reserve. Dealers are expected to submit offers for both themselves and their customers.
How will the purchases be conducted?
The Desk will conduct purchases of Treasury securities via FedTrade, the Desk’s proprietary trading system. FedTrade operations will be conducted using multiple-price, competitive auctions with approved counterparties. A "multiple-price" auction is an auction in which securities are awarded at the price corresponding to the participant’s offer in the operation, resulting in the security being awarded at multiple prices. The minimum auction amount, offer size, and offer increment are each $1 million. Participants can submit up to nine offers per security, with each offer reflecting both a price and par amount.
Offers in FedTrade operations will be evaluated based on their proximity to prevailing market prices at the close of the auction, as well as measures of relative value. Relative value measures are calculated using the Federal Reserve Bank of New York’s proprietary model.
How will the Desk communicate the operation results?
Operation results will be posted on the Federal Reserve Bank of New York’s website following each operation. The information posted will include the total amount of propositions received, the total amount of propositions accepted, and the amount purchased per issue. In addition, participating dealers will receive the operation results, including their accepted propositions, via FedTrade, immediately following the close of the auction.
Will the Desk release operation pricing results?
The Desk will publish information on transaction prices in individual operations at or around the end of the calendar month. For each security purchased in each operation, the Desk will release the weighted-average accepted price, the highest accepted price, and the proportion accepted of each proposition submitted at the highest accepted price.
In addition to the pricing information released each month, Section 1103 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires that detailed operational results, including counterparty names, be released two years after each quarterly transaction period.
Whom should dealers call if they experience difficulties during the operation?
Primary dealers may call the Federal Reserve Bank of New York Trading Desk with submission and verification questions. For system-related problems, dealers may call the Federal Reserve Bank of New York Primary Dealer Support.
How will the Desk manage the SOMA’s maturing Treasury securities?
As directed by the FOMC, the Desk will roll over maturing Treasury securities at auction. For more information on Treasury rollovers, see https://www.newyorkfed.org/markets/treasury-rollover-faq.
When and how does Treasury security settlement take place?
Treasury security settlement will typically occur on a T+1 basis, i.e. one business day after the day of the operation, via the Fedwire Securities System.
