Fed to Lend $200 Billion, Take on Mortgage Securities (Update3) The Federal Reserve, struggling to contain a crisis of confidence in credit markets, plans to lend up to $200 billion in exchange for mortgage-backed securities.
New Tool
The Fed today set up a new tool, the Term Securities Lending Facility, to lend Treasuries to primary dealers for 28- day periods through weekly auctions. The Fed also said it's increasing the amount of dollars available to European central banks through swap lines.
The Federal Open Market Committee authorized increasing currency swap lines with the European Central Bank and Swiss National Bank to $30 billion and $6 billion, respectively, increasing the ECB's line by $10 billion and the Swiss line by $2 billion. The Fed extended the swaps through Sept. 30.
The ECB announced it will lend banks in Europe up to $15 billion for 28 days and the SNB announced a similar auction of up to $6 billion. The Bank of England will offer $20 billion of three-month loans on March 18 and hold another auction on April 15. The Bank of Canada announced plans to purchase $4 billion of securities for 28 days.
Treasuries slid after the announcement, with yields on 10- year notes rising to 3.60 percent at 10:32 a.m. in New York, from 3.46 percent late yesterday.
* 11 Mar 08: 14:42(LDN) - FX NOW! USD/JPY Flows - While equities retain gains, USD/JPY has room to move higher
USD/JPY traders are having some fun with the markets. Supported by the positive equity performance, dealers took prices up to challenge the offers seen earlier that stopped the rally around 103.20, where at least one Asian sovereign had been seen in the selling group. The offers were not there this time around and stops in the 103.25-30 range were tripped sending prices up to highs of 103.40. While equities are holding their gains, USD/JPY has more room on the upside. M.B.
* 11 Mar 08: 14:37(LDN) - FX NOW! EUR/USD Flows - more a buy opportunity than marking a top
We suspect that the run to 1.5495 on EUR/USD has proved 'near enough' to 1.5500 for a good many longs. However, while the US trade gap was better than expected, we suspect that the real US dollar policy is that it will get better yet if the USD weakens some more. Add that to ECB intransigence on interest rates, chances that the Fed will still cut by 75bps next week, more signs of peg-related unrest in the Middle East and ongoing reserve diversification (especially if the M.East story gets to take off), then we doubt that we have seen the EUR/USD high yet. PB
* 11 Mar 08: 13:26(LDN) - FX NOW! USD/JPY, EUR/JPY Flows - Asian sovereigns seen in group offering USD/JPY, stops near
USD/JPY has run into offers, rumored to include Asian sovereigns at the highs of 103.20. It is worth noting that the offers are in front of stops that are resting in the 103.25-30 range. While JPY has dropped vs USD reflecting the advanced in equities that has been sustained, with S&P futures still up 28 points at 1304, JPY is still slipping modestly vs EUR that has been moving higher ever since the stronger than expected ZEW was released this morning. M.B.
* 11 Mar 08: 13:03(LDN) - FX NOW! EUR/USD, EUR/JPY Flows - Central Bank liquidity efforts
Somewhat of a relief rally for the USD and equities on what has essentially been a signal from the major central banks. But signal it is, and a signal that might well discourage (for a while) what have become widespread expectations for another 75bps of cuts on March 18. In the meantime, the biggest USD move has been versus the JPY - which fits with the reverse flows previously seen with USD/JPY moving in lockstep with major equity indices. This has left EUR/JPY higher - a move which has restricted the pullback on EUR/USD to the 1.5350 area. C.F.
