WASHINGTON (MNI) – The following is the text of a statement
released Wednesday by the Federal Reserve Bank of New York in
relation to the Federal Open Market Committee monetary policy decision
announcement:
On November 3, 2010, the Federal Open Market Committee (FOMC)
decided to expand the Federal Reserves holdings of securities in the
System Open Market Account (SOMA) to promote a stronger pace of economic
recovery and to help ensure that inflation, over time, is at levels
consistent with its mandate. In particular, the FOMC directed the Open
Market Trading Desk (the Desk) at the Federal Reserve Bank of New York
to purchase an additional $600 billion of longer-term Treasury
securities by the end of the second quarter of 2011.
The FOMC also directed the Desk to continue to reinvest principal
payments from agency debt and agency mortgage-backed securities into
longer-term Treasury securities. Based on current estimates, the Desk
expects to reinvest $250 billion to $300 billions over the same period,
though the realized amount of reinvestment will depend on the evolution
of actual principal payments.
Taken together, the Desk anticipates conducting $850 billion to
$900 billion of purchases of longer-term Treasury securities through the
end of the second quarter. This would result in an average purchase pace
of roughly $110 billion per month, representing about $75 billion per
month associated with additional purchases and roughly $35 billion per
month associated with reinvestment purchases.
The Desk plans to distribute these purchases across the following
eight maturity sectors based on the approximate weights below:
Nominal Coupon Securities by Maturity Range*
Maturity Percentage
(in years)
Nominal
1-1/2 to 2-1/2 5%
2-1/2 to 4 20%
4 to 5-1/2 20%
5-1/2 to 7 23%
7 to 10 23%
10 to 17 2%
17 to 30 4%
TIPS
1-1/2 to 30 3%
*The on-the-run 7-year note will be considered part of the 5- to
7-year sector, and the on-the-run 10-year note will be considered part
of the 7- to 10-year sector.
**TIPS weights are based on unadjusted par amounts.
Under this distribution, the Desk anticipates that the assets
purchased will have an average duration of between 5 and 6 years. The
distribution of purchases could change if market conditions warrant, but
such changes would be designed to not significantly alter the average
duration of the assets purchased.
To provide operational flexibility and to ensure that it is able to
purchase the most attractive securities on a relative-value basis, the
Desk is temporarily relaxing the 35 percent per-issue limit on SOMA
holdings under which it has been operating. However, SOMA holdings of an
individual security will be allowed to rise above the 35 percent
threshold only in modest increments.
Purchases associated with balance sheet expansion and those
associated with principal reinvestments will be consolidated into one
set of operations to be announced under the current monthly cycle. On or
around the eighth business day of each month, the Desk will publish a
tentative schedule of purchase operations expected to take place through
the middle of the following month, as well as the anticipated total
amount of purchases to be conducted over that period. The schedule will
include a list of operation dates, settlement dates, security types to
be purchased (nominal coupons or TIPS), the maturity date range of
eligible issues, and an expected range for the size of each operation.
The Desk expects to conduct the November 4 and November 8 purchase
operations that were announced on October 13, and it plans to publish
its first consolidated monthly schedule on November 10 at 2:00 p.m.
Purchases will be conducted with the Federal Reserves primary
dealers through a series of competitive auctions operated through the
Desks FedTrade system. Consistent with current practices, the results
of each operation will be published on the Federal Reserve Bank of New
Yorks website shortly after each purchase operation has concluded. In
order to ensure the transparency of our purchase operations, the Desk
will also begin to publish information on the prices paid in individual
operations at the end of each monthly calendar period, coinciding with
the release of the next periods schedule.
** Market News International Washington Bureau: 202-371-2121 **
[TOPICS: MMUFE$,MGU$$$,M$U$$$]