This is the program in which the Fed simultaneously sells short-term securities and buys longer-term ones.
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Central banks currently hold 70% of their foreign-exchange reserves in longer-term securities and 30% in deposits.
Buying shorter-term securities, shorter-term bonds, you may not get a lot of yield.
This may or may not have much to do with the Fed buying long-term securities in the U.S. market under QE2.
These include the stockmarket, the bond market (government and corporate) and the money market for short-term securities, such as commercial paper.
Fourth, if necessary, the Fed could reduce reserves by selling a portion of its holdings of long-term securities into the open market.
Money-market funds are a specialized kind of mutual fund that is restricted to investing in very short-term securities with little chance of default.
He said the cheap money has compressed the bank's lending margins, as well as the returns the bank makes on cash and short-term securities.
Hard-to-sell long-term securities had been bought with short-lived debt, which left borrowers vulnerable to a change in sentiment every time the debt fell due.
The Federal Reserve's third set of policy tools for supporting the functioning of credit markets involves the purchase of longer-term securities for the Fed's portfolio.
Active managers in intermediate-term securities fared better than managers in long-term securities, and managers in investment grade bonds fared better than managers in high-yield securities.
The euro and European and U.S. stocks also climbed after his Sept. 6 announcement that the ECB would purchase short-term securities of troubled euro zone governments.
By keeping the federal funds rate close to zero for three more years, and switching from shorter to longer-term securities, the Fed hopes to spur investment and growth.
In a normally growing economy, long-term rates are higher than those on short-term securities to compensate investors for the risk that inflation will eat into the value of their holdings.
He said the cheap money has compressed the bank's lending margins and spreads it makes on client transactions, as well as the returns the bank makes on cash and short-term securities.
He specifically targets the Fed's "unprecedented" policy of sustaining near-zero interest rates and its exercise in money-printing, "Quantitative Easing 2, " that has it buying medium- and longer-term securities from the Treasury.
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Significantly for the Fed, the new program (which it is inelegantly calling its "term securities lending facility") is designed to be "reserve neutral, " meaning it won't increase the nation's money supply to the point where it sparks inflation.
The only difference under quantitative easing is that the purchases probably focus on longer-term Treasury securities rather than short-term Treasury securities hoping to push longer-term yields down a bit as well as get credit and money flowing again.
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When even corporate treasurers are taking their money out of short-term securities and parking it in no-interest cash, you know the big boys are discovering the same anxieties Mom and Pop have known for a year as they ran out of safe havens for their assets.
These three sets of policy tools--lending to financial institutions, providing liquidity directly to key credit markets, and buying longer-term securities--have the common feature that each represents a use of the asset side of the Fed's balance sheet, that is, they all involve lending or the purchase of securities.
Under Operation Twist, already under way when the Federal Reserve said it would embark upon purchases of mortgage-backed securities last month, the central bank uses proceeds from the sale of short-term Treasury securities to buy long-term ones in its bid to push down long-term rates.
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"To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities, " the FOMC says, adding it will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature.
This is where the Fed switches from buying short-term Treasury securities to buying long-term ones in a bid to push down long-term yields without increasing its balance sheet.
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The Fed chairman defended the past two rounds of quantitative easing, in which the central bank buys long-term Treasury securities in an effort to push down long-term yields.
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Mortgage REITs, which use short-term debt to buy longer-term mortgage securities, also are at the greatest risk if interest rates rise because that would increase their short-term borrowing costs and cut the value of the mortgage bonds that they hold, possibly resulting in losses and reduced dividends.
The interest rate on very short term Treasury securities is basically zero (under 0.1 percent).
The FOMC also said it would study the potential benefits of purchasing longer-term Treasury securities.
Grant also highlights Campbell Soup ( CPB) as a compelling alternative to long-term Treasury securities.
They also said that there were evaluating the potential benefits of purchasing longer-term Treasury securities.
The Fed's increased presence in the market for long-term Treasury securities poses nontrivial risks that bear watching.
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