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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: fedhead who wrote (34904)	12/8/1999 11:11:00 PM
From: Dwight E. Karlsen	Respond to of 99985

Anindo, the Fed removes reserves by holding auctions of treasury notes. These same notes they buy back to add liquidity. I'm sure you've heard of U.S. savings bonds. Notes, bonds etc. with varying time to maturity. All these do essentially the same thing: When the Fed sells them at auction (generally to institutional clients, e.g. big banks, who in turn sell them to their clients), they take in money; hence money supply is removed from the banking system and back to the Fed, from whence it originated. When these debt instruments mature, the Fed must buy them back with interest added; but sometimes they buy them back before the maturity date. If you read the Treasury News articles, you will see that the Fed has been mostly doing that lately. I used to see a lot of Fed auction notices on Yahoo market news, but I haven't seen any lately. I'm not sure when the last auction was. The Fed has a comprehensive and educational web site, where you can read more to find answers to questions: federalreserve.gov