Alea

We can win any game where we get to define the victory condition.

Seriously, the 1.15x bid-to-cover was weaker than I would have expected. They only received $86 billion in bids to swap Agency RMBS collateral for Treasury collateral? Maybe I am missing something, but given the low bid-to-cover and being so near the 25 bp minimum, that auction came close to failing.

David:
The best outcome would have been if nobody showed up. It would have shown that dealers have no problem financing schedule 2 collateral. Given that the overnight spread is well over 100 bp and 14 day term around 75 bp, this is a “good” result.
By the way nothing goes off the book, just like a repo, the assets remain on the balance sheet of the dealers.

perhaps the dealers had no mbs to repo to the FED as all has been hocked already

Prior to today’s TSLF od $75 billion, in the last 10 days the Fed did:

* a $50 billion TAF auction on Monday. Also did a $50 billion TAF on March 10.

* Disscount window borrowings set another ALL-TIME record this week averaging $33 billion, this week with $37 billion yesterday alone. The old record was $12 billion the weel of 9/20/01.

* Sold $47 billion of Treasuries this week ($40 billion in bills and $7 billion in notes and bonds). This is anlso a world record, breaking the old record of $40 billion set last week

* Also keep in mind that Bear Stearns is probably not playing as the Fed gave Morgan $30 billion special for them, of which they have drawn on $5.5 billion.

So, remind me again why $86 billion is bids means the situation is stabilzing? Prior to today’s auction, the Fed has already supplied $215 billion in liquidity in just the last few days and yet te street had a need to ask for $86 billion more.

Silly me, I would think that the street needing $300+ billion in liqudity since march 10 would be a sign of trouble, not that things are getting better.

jck,

Just a quick note regarding the JPM facility (your comment #8). There are (or were) in fact three such facilities:

(1) the March 14 facility, which predates the original merger agreement between JPM and Bear;
(2) the March 16 facility, which supplements the original merger agreement; and
(3) the USD29bn term financing facility, which was agreed last weekend in connection with the amended merger agreement.

As you say, facilities (1) and (2) appear under “Other credit extensions”; cf. the introduction to the H.4.1 release of March 20, 2008. This release shows that utilization of these facilities had dropped to zero on March 19 - presumably because, by then, Bear could access the Primary dealer credit facility, which became operative on March 17. The current H.4.1 shows that utilization has remained at zero since then.

The 29 billion facility doesn’t appear on the Fed balance sheet yet, because it will be provided “[a]t the closing of the merger,” (http://www.ny.frb.org/newsevents/news/markets/2008/rp080324.html). I guess that means that it is completely off-balance for the time being.

Cahagnes:
Thx for the details. I suspect the loan is under the PDCF for now but it would be a good idea for the Fed to clarify that. The market is under the impression that the PDCF is used by other parties than Bear.

Cahagnes:
There will be a loan of $30 bn against some Bear assets when the JPM/BS merger closes. In the meantime some small amount was drawn at the discount window ($5.5 bn) under a new “other credit extensions” during the week ending march19th, the Fed said:”This category includes credit extensions such as the arrangements involving JPMorgan Chase & Co. and The Bear Stearns Companies Inc. that were approved by the Board of Governors on March 14, 2008, and March 16, 2008.” That line went to 0 on march20th while the PDCF that day went up to $28.8 bn. We can speculate that the loan went under the PDCF on march20th and later, but I would prefer not to have to speculate and that the Fed explains clearly what’s up.

[...] billion U.S. Treasurys will mature and leave the market. Note: this is twice the size of the successful TSLF auction last Friday. However, there can be more TSLF auctions in the future. The total size of the program [...]