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sexta-feira, março 27, 2009

Obama Seeks JPMorgan, Goldman Support on Bank Plan

By Liz Capo McCormick

March 27 (Bloomberg) -- The Federal Reserve bought $7.541 billion of Treasuries in its second outright purchase of U.S. government debt in three days as part of the central bank’s efforts to lower consumer borrowing rates.
Seven of the 18 securities maturing from April 2011 through April 2012 listed for possible acquisition were bought, according to the Federal Reserve Bank of New York Web site. The majority of the purchase was $5.625 billion of the 1.375 percent note due March 15, 2012.

Central banks in the U.S., U.K. and Japan are buying government debt in the latest step to broaden efforts to unfreeze credit and end the recession after cutting benchmark interest rates close to zero. The Fed bought $7.5 billion in debt on March 25, the first purchase since the early 1960s by the central bank under a $300 billion plan announced March 18. “The Fed’s monetization of government borrowing is in economic terms a hugely powerful liquidity tool,” said Lena Komileva, head of Group of Seven market economics in London at Tullett Prebon Plc, the world’s second-largest interdealer broker. “It also helps to address investor fears, by depressing government yields and private sector borrowing costs and signaling a firm commitment by the Fed to keep monetary liquidity flowing for a long time.”
Treasuries gained for a second day as traders focused on the Fed’s purchases after the Treasury sold a record $98 billion in notes this week. The yield on the 0.875 percent note maturing in March 2011 fell 3 basis points to 0.88 percent, according to BGCantor Market Data.

Balance Sheet
Central bankers and the Treasury are working to reduce consumer interest rates along with the borrowing costs paid by banks. The difference between rates on 30-year fixed mortgages and 10-year Treasuries was 2.31 percentage points, according to data compiled by Bloomberg. That’s up from an average of 1.75 percentage points in the decade before the subprime mortgage market collapsed.
Fed policy makers lowered the benchmark interest rate to a target range of zero to 0.25 percent in December and switched to using credit programs and outright purchases of Treasuries as the main tool of monetary policy, to pump cash into banks and bolster lending.

The size of the Fed’s balance sheet has increased 56 percent to $2.07 trillion in the past year. The central bank’s assets will expand further after Fed Chairman Ben S. Bernanke earlier this month announced a $1.15 trillion effort to pump more cash into the economy through purchase of Treasuries and mortgage and agency securities.
The $40 billion in new two-year notes, sold on March 24 at a yield of 0.949 percent, aren’t eligible for today’s Fed purchase because the debt is still trading on a so-called when- issued basis until the transaction settles.

Next Rounds
The Fed maintains a 35 percent per security limit for each specific Treasury it holds in its System Open Market Account, or SOMA. Securities purchased in the Treasury purchases program are held in SOMA. The central bank makes these securities available for loan to dealers against Treasury general collateral on an overnight basis. Dealers bid in a multiple-price auction held daily through its securities lending program.

The central bank announced plans to buy through April 2 debt maturing between March 2011 and February 2039. The Fed’s 16 primary dealers are eligible to sell Treasuries to the Fed, both for themselves and their customers, as part of the program.
To contact the reporter on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net

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