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WASHINGTON (Thomson Financial) - The US Treasury Department announced a new program aimed at helping the Federal Reserve manage its balance sheet in the wake of the various forms of liquidity the Fed has made available to market participants over the last several months.
Just minutes after the announcement, Treasury announced an auction of a $40 billion, 35-day cash management bill. The auction will end at 1 PM EST today.
In a statement, Treasury said it has established a Supplementary Financing Program (SFP) "at the request of the Federal Reserve" under which Treasury can auction Treasury bills that will "provide cash for use in the Federal Reserve initiatives".
A Treasury official said the SFP would help the Fed "better manage" its balance sheet needs.
The statement said the auctions will be governed by existing Treasury auction rules.
"Treasury will provide as much advance notification as possible regarding the timing, size, and maturity of any bills auctioned for SFP purposes," the official said.
The Fed in December established the Term Auction Facility, which offers liquidity to depository institutions. The Primary Dealer Credit Facility, established in March allows primary dealers to borrow funds from the Fed, while the Term Securities Lending Facility lets dealers exchange illiquid securities for Treasuries.
pete.kasperowicz@thomsonreuters.com
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