US Tsy's Fisher: Selling Notes To Stem `Cascading Fails`
WASHINGTON -(Dow Jones)- In a rare move to shore up bond markets still reeling from terrorist attack, the U.S. Treasury will sell $6.0 billion in reopened 10- year notes Thursday, Treasury said Thursday.
The auction will add securities to the beleaguered overnight repurchase agreement markets, which have struggled ever since Sept. 11. Fails, or incomplete transactions, have soared close to $40 billion for five- and 10-year notes, as opposed to normal levels of zero to $3 billion, Treasury said.
Peter Fisher, Treasury's undersecretary for domestic finance, said the fails have begun to feed back on themselves and exacerbate the problem, which prompted Treasury to step in. A "fail" occurs when a dealer cannot return securities loaned as collateral in a repurchase agreement, often because that dealer in turn has not been able to receive securities back from other "repo" transactions.
"The problem of the fails in the market has been growing over the last several weeks. This is clearly a problem of elevated demand," Fisher said. "There's no intentional effort on the part of anyone to hold back supply in an effort to squeeze the market, but there does seem to be some institutional investors who are reluctant to lend in this situation because of the high fails rate, because they're afraid of (not) getting their securities back."
The auction is a reopening of the 5% note first sold in August. Treasury also will announce a reopening of the same note at its fall refunding conference later this month as scheduled, Treasury officials said, although they have not yet determined the size of that issue or how it will be affected by the off- schedule auction. |
