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To: pater tenebrarum who wrote (59657)	8/31/1999 7:51:00 PM
From: flatsville	Read Replies (1) of 86076

For the bond watchers-- Could this explain the recent rash of coupon passes? ---------------------------------------------------------------------- biz.yahoo.com Fair Use/etc... 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. --------------------------------------------------------------------

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