EDITOR NOTE: In addition to pledging $120 billion a month to purchase bonds until US economic recovery is showing some signs of hope, the Fed is also extending its dollar swap lines and repo facilities until 2021. These facilities are designed to insure the supply of dollars to foreign central banks to fund businesses and other banks during times of market distress. These facilities are also supposed to be “temporary,” as the Fed’s rescuing of the overnight lending market over a year ago was supposed to be temporary. Apparently, the Fed may be expecting some heavy turbulence ahead. But are their models underestimating the duration of the turmoil that has already begun to ravage the global economy?
In addition to its return to forward guidance, according to which QE will stay at $120BN until "substantial further progress has been made",the Fed also announced the extension through September of next year of its temporary dollar swap lines and its repurchase facility. The reason: "A further extension of these facilities will help sustain recent improvements in global U.S. dollar funding markets by serving as an important liquidity backstop."
These two programs were designed to help support the international supply of dollars and the smooth functioning of the Treasury market during the post-covid crisis when a massive dollar short squeeze erupted.
The full statement is below:
The Federal Reserve on Wednesday announced the extension of its temporary U.S. dollar liquidity swap lines and the temporary repurchase agreement facility for foreign and international monetary authorities (FIMA repo facility) through September 30, 2021. These facilities were temporarily established in March 2020 to ease strains in global dollar funding markets resulting from the COVID-19 shock and mitigate the effect of such strains on the supply of credit to households and businesses, both domestically and abroad. Extensions to both facilities through March 2021 were announced on July 29, 2020. A further extension of these facilities will help sustain recent improvements in global U.S. dollar funding markets by serving as an important liquidity backstop. In addition, the FIMA repo facility will help continue to support the smooth functioning of the U.S. Treasury market by providing an alternative temporary source of U.S. dollars other than sales of securities in the open market.
The extension of the temporary swap lines applies to all nine central banks previously announced on March 19 and extended in July. These swap lines allow the provision of U.S. dollar liquidity in amounts up to $60 billion each for the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Korea, the Banco de Mexico, the Monetary Authority of Singapore, and the Sveriges Riksbank (Sweden) and $30 billion each for the Danmarks Nationalbank (Denmark), the Norges Bank (Norway), and the Reserve Bank of New Zealand.
The FIMA repo facility will continue as originally announced on March 31 and similarly extended in July. Its further extension will allow approved FIMA account holders to continue to temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S
At the same time the NY Fed - the trading and market manipulating arm of the Federal Reserve - said that the FOMC "directed us to continue to increase the System Open Market Account (SOMA) holdings of Treasurys by $80B per month and of AMBS by $40B per month" as noted previously.
The FOMC also instructed the NY Fed to increase holdings of Treasurys and AMBS by additional amounts and purchase ACMBS as needed to sustain smooth functioning of markets for these securities. Full statement below:
Effective December 17, 2020, the Federal Open Market Committee (FOMC) directed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York to continue to increase the System Open Market Account (SOMA) holdings of Treasury securities by $80 billion per month and of agency mortgage-backed securities (MBS) by $40 billion per month. Consistent with this directive, the Desk’s Treasury and agency MBS purchases will continue at their current pace and composition, and the existing purchase schedules for these securities, released on December 11, 2020, will remain in effect. The FOMC also directed the Desk to increase holdings of Treasury securities and agency MBS by additional amounts and purchase agency commercial mortgage-backed securities (CMBS) as needed to sustain smooth functioning of markets for these securities.
The Desk’s purchases of Treasury securities will continue to be conducted across a range of maturities and security types in a manner consistent with current practice. The Desk will also continue to roll over at auction all principal payments from SOMA holdings of maturing Treasury securities. For information on purchase amounts and schedules, see Treasury Securities Operational Details.
Similarly, the Desk’s purchases of agency MBS will continue to generally be concentrated in recently produced coupons in 30-year and 15-year fixed rate agency MBS in the To-Be-Announced market. The Desk will also continue to reinvest principal payments from agency MBS and agency debt in agency MBS. For information on purchase amounts and schedules, see Agency MBS Operation Schedule.
In addition, the Desk’s purchases of agency CMBS will continue to be secured primarily by multifamily home mortgages that are guaranteed fully as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae and that the Desk has determined are suitable for purchase. The amounts purchased will depend on the reasonableness of the prices offered, and agency CMBS principal payments will not be reinvested. For information on purchase amounts and schedules, see Agency CMBS Operation Schedule.
Additional information on Treasury, agency MBS, and agency CMBS purchases can be found in the following locations: