Fed Minutes Show Reverse Repo w/MMFs
The latest "Minutes of the Federal Open Market Committee (November 2-3, 2010) discuss Developments in Financial Markets and the Federal Reserve's Balance Sheet. They say, "The Manager of the System Open Market Account (SOMA) reported on developments in domestic and foreign financial markets since the Committee met on September 21, 2010. He also reported on System open market operations, including the continuing reinvestment into longer-term Treasury securities of principal payments received on the SOMA's holdings of agency debt and agency-guaranteed mortgage-backed securities (MBS). The Open Market Desk at the Federal Reserve Bank of New York purchased a total of about $65 billion of Treasury securities since the Committee decided, on August 10, to begin reinvesting such principal payments. Purchases were concentrated in nominal Treasury securities with maturities of 2 to 10 years, though some shorter-term and some longer-term securities were purchased along with some Treasury inflation-protected securities (TIPS). Over the intermeeting period, the Desk also conducted a number of small-value tri-party reverse repurchase operations with the primary dealers and with money market mutual funds that have been accepted as counterparties for such operations; these transactions, which the Desk conducted to ensure continuing operational and systems readiness, used Treasury securities, agency debt, and agency-guaranteed MBS as collateral. In addition, the Federal Reserve conducted another small-value auction of term deposits to ensure the continued operational readiness of the term deposit facility and to increase the familiarity of eligible depository institutions with the auction procedures. There were no open market operations in foreign currencies for the System's account over the intermeeting period. By unanimous vote, the Committee ratified the Desk's transactions over the intermeeting period." The minutes add, "Over September and October, M2 expanded at an average annual rate that was noticeably above its pace earlier in the year. The growth rate of liquid deposits moved up, while small time deposits and retail money market mutual funds continued to contract. The compositional shift likely reflected the relatively attractive yields on liquid deposits. Currency growth strengthened, with indicators suggesting strong demand from abroad."
