Replies to post #32474 on Short Term Trading Member Forum

[stkboy1]

http://globaleconomicanalysis.blogspot.com/
In an attempt to restore liquidity the Fed came up with a new facility called the Term Securities Lending Facility (TSLF). This program allows primary dealers to exchange a total of $200 billion mortgage backed securities (MBS) for treasuries. The period is 28 days instead of the traditional overnight lending. Why $200 billion? Because primary dealers hold $139.7 billion agency securities and $60.2 billion mortgage-backed securities. Minyanville cited Tony Crescenzi at Miller Tabak for those numbers early Tuesday.

Unlike the Term Auction Facility (TAF), which swaps cash for MBS and therefore requires sterilization so as not to affect the target funds rate, the TSLF is simply a swap of one instrument for another. It is not printing, and it injects no cash into the system even though there are misleading headlines such as this one bandied about by MarketWatch: Fed turns on the spigot of money again.

Lee Adler in Bandaid on a Ruptured Jugular explains what the Fed is up to with the TSLF.


The Primary Dealers are heavily short Treasuries at all times. They are heavily long all other debt securities simultaneously. The level of securities lending in recent months is unprecedented in all of human history, by an order of magnitude of 10.