NYFED raises Treasuries lending limits - an important development - effective Sept 7

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Dear friends,

This is so important - and nobody's saying a word - at least not on the sites that I visit regularly. Thanksto whoever posted "Millennium bug fears threaten gilts market" - read this first!!!

If no longer on most recent - it's probably filed under banking & finance. From London Times 31.8.99


If you're quick - you'll find it under Yahoo finance

Try http://search.news.yahoo.com/ - prompt "limits"

this starts Sept 7 - meanwhile dealers expect corporates to offer 30 to 40 billion dollars of bond raisings this month - and 30 billion in October.

The punchline

"traders said the near doubling of the amount of which Treasury dealers can borrow daily under the Fed's system open-market account (SOMA) programme was likely related to Y2K fears"

""the limit per issue will be raised to 45% of the total (Fed's $490 billion Treasury portfolio) effective September 7 a New York Fed spokesman said.

Remember the old saying "watch what"they" are doing - not what they are "saying". Put this all together with what is evidently happening in the London Gilts' market - well - I'll leave that to somebody else. I know just enough about the U.S. bond and UK gilts markets to know that a little knowledge is dangerous. I must admit that I hoped that someone would have already found the Fed' story when I clicked on to this site this evening. The story appeared on Reuters - Australian time 8.30am this morning 1.9.99

Will someone please elaborate further.

Many thanks Pam.

P.S. why isn't the U.S. dollar rising now - the discount rate went up last week.....dollar falls further against the Japanese Yen - down to 109.37 today. One thing - who are the biggest buyers of American Government and corporate bonds - as far as I know - it's still the Japanese ???

-- Pamela J Lawrence (p@lawrence@hermes.net.au), September 01, 1999


Thanks Pamela. I had not heard this and the link does not work. You are correct. This speaks volumes. There is a lot of fear that cannot be hidden and the actions of the money people are becoming more pronounced.

I think we will see more and more disconnect between reality and the bump in the road scenario. Yup, watch what they do.

-- Mike Lang (Webflier@erols.com), September 01, 1999.

Part of what is going on with the yen/dollar is that people are pulling out of U.S. Bonds & stocks and going to the recovering Japanese market. But dollar seems to be going down around the world. Maybe too many of them. We don't manufacture we buy.

-- rambo (rambo@thewoods.com), September 01, 1999.

Found it...


[Fair Use: For Educational/Research Purposes Only]

Tuesday August 31, 6:28 pm Eastern Time

NYFed raises Treasuries lending limits for dealers

By Isabelle Clary

NEW YORK, Aug 31 (Reuters) - The Federal Reserve Bank of New York said on Tuesday it will allow U.S. primary dealers to borrow a much bigger chunk of the central bank's portfolio of U.S. Treasuries, starting after the Labor Day weekend.

Although the Fed did not specifically cite concern over financial markets' potential funding problems related to the Year 2000, traders said the near-doubling of the amount of Treasuries dealers can borrow daily under the Fed's System Open-Market Account (SOMA) program was likely related to Y2K fears.

``The limit per Treasury issue will be raised to 45 percent of the total (Fed's $490-billion Treasury portfolio) holdings from 25 percent, effective September 7,'' a New York Fed spokesman said.

The New York Fed created the SOMA program in 1969 to allow U.S. primary dealers -- the brokerage firms that deal directly with the Fed and are market-makers in U.S. government securities -- to borrow U.S. Treasuries from the central bank's portfolio overnight through bidding at daily auctions with a noon deadline.

The SOMA program helps alleviate market disruptions such as the ones that may be related to scarce Treasury issues trading ``on special'' or at a premium in the repo market.

``The rationale for the decision remains the same, to provide a secondary and temporary source of securities to the Treasury financing market in order to promote smooth clearing of Treasury securities,'' the spokesman added.

But dealers said this was the latest effort by the Fed to ensure smooth financial markets ahead of the year-end when portfolio managers are expected to be exceptionally cautious with their counterparties.

``I think Y2K will have a very big effect over the year-end relative to the Treasury issues that are scarce,'' a repo trader said. ``It's a good move by the Fed.''

On April 26, the New York Fed had taken a first step to broaden its SOMA program by raising the amount of Treasuries any primary dealer can borrow from the Fed's portfolio to $100 million per issue and $500 million per firm.

``Since the program was revamped in late April, primary dealers borrowed $77 billion worth of Treasuries or an average of $900 million overnight,'' said the New York Fed spokesman. ``The new program went very well.''

The Fed has already beefed up its cash coffers to meet any unusual surge in demand for paper money ahead of the year-end and also opened a special ``don't-ask-don't-tell'' discount window operation where banks will be able to borrow large amounts of funds at 150 points above the 5.25 percent Federal funds rate.

The New York Fed had said it retained the right to reject bids if it felt a dealer was bidding for a specific issue in an attempt to squeeze that issue.


-- Linkmeister (link@librarian.edu), September 01, 1999.

I hope someone will explain the expected consequences of the increase in lending limits to "U.S. primary dealers -- the brokerage firms that deal directly with the Fed and are market-makers in U.S. government securities".

Could this enable a major expansion in derivatives exposure?

-- Tom Carey (tomcarey@mindspring.com), September 01, 1999.

The Fed is trying to do the job of being "lender of last resort" at a time when everyone will be pulling back on credit in the fourth quarter of this year. The Fed knows that the stock market is currently over-valued and they can see the freight train coming down the tracks.

If they don't add liquidity to the system, the strain of Y2K expectations and uncertainty (regardless of actual problems) will cause some of the markets to buckle and collapse. They don't want this to happen any more than anyone else, so they are feeding more line to banks and market players.

Of course, if physical problems do develop in terms of product delivery, then the likely result will be a lot of inflation in the Spring.

-- nothere nothere (notherethere@hotmail.com), September 01, 1999.


Anonymous99 was kind enough to have posted the "gilt' story yesterday. Its still listed.

After reading this story it had a profound affect in that it is proof that financiers are and will react to y2k. The fact that it is starting in the futures market is just a sign as to what will happen with the stock market when the time is ripe! I surmised the lack of response to this story by the "threadsters" here was just my great brain being ahead of the herd.

-- David Butts (dciinc@aol.com), September 01, 1999.



-- Jerry B (skeptic76@erols.com), September 01, 1999.

I would think that these two threads would be a good addition to this subject.

Greenspans speach is one of the most alarming bits of information to come across this forum IMHO.

 Greenspan's Jackson Hole speech

 A ticking bomb...

-- Brian (imager@home.com), September 01, 1999.

The following is a very carefully written statement. One more interesting link to add to this thread...

http://infoseek.go.com/Content?arn=BW1371-19990901&qt=%22year+2000% 22+bug*+glitch*+y2k&sv=IS&lk=noframes&col=NX&kt=A&ak=news1486

"Stein Roe's Senior Investment Strategist's Thoughts on Y2K"

-- Linkmeister (link@librarian.edu), September 01, 1999.

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