Sunday, April 4, 2010

Auctions of Cash Management Bills in 2010 (Updated)

Auctions of CMB (Cash Management Bills) under SFP (Supplemental Financing Program) are quietly increasing in frequency and in amounts raised.

CMB is a short-term security sold by the U.S. Department of the Treasury. The maturity on a CMB can range from a few days to six months. The money raised through these issues is used by the Treasury to meet any temporary shortfalls. CMBs tend to pay higher yields than bills with fixed maturities, but their shorter maturities lead to lower overall interest expense.

But there is another type of CMB since October 2008 (SFP, or Supplemental Financing Program) , whose proceeds are used exclusively by the Federal Reserve for its various lending and credit programs to support the financial industry and also to support its own balance sheet.

Auctions of CMB under SFP have increased recently, after a relatively quiet period since November last year.

Regular CMB issues in 2010 so far:

  • March 30: 18-day CMB, $17 billion
  • April 1: 10-day CMB, $21 billion
CMB issues under SFP in 2010 so far:
  • February 3: 21-day CMB, $5 billion
  • February 24: 56-day CMB, $25 billion
  • March 3: 56-day CMB, $25 billion
  • March 10: 56-day CMB, $25 billion
  • March 17: 56-day CMB, $25 billion
  • March 24: 56-day CMB, $25 billion
  • March 31: 56-day CMB, $25 billion
  • April 7: 56-day CMB, $25 billion (scheduled)
There is no announcement either from Treasury or from the Federal Reserve as to how the money thus raised is being spent, and that has been the case ever since the Supplemental Financing Program started in October 2008.

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Terminology
SOMA System Open Market Account at the Federal Reserve New York Bank
Primary Dealer A bank or securities broker-dealer that may trade directly with the Federal Reserve System. Primary Dealers are required to bid at Treasury auctions. Current list of Primary Dealers is available at New york Fed.
Indirect Bidder Supposed to be the foreign investors, both foreign central banks and foreign private investors
Bid to Cover ratio The number of bids received divided by the number of bids accepted. The higher the ratio, the higher the demand.
Reopening The U.S. Treasury issues additional amounts of a previously issued security. The reopened security has the same maturity date and coupon interest rate as the original security, but with a different issue date and usually a different purchase price.
Cash Management Bill (CMB) A short-term security sold by the U.S. Department of the Treasury. The maturity on a CMB can range from a few days to six months. The money raised through these issues is used by the Treasury to meet any temporary shortfalls. CMBs tend to pay higher yields than bills with fixed maturities, but their shorter maturities lead to lower overall interest expense.
Supplementary Financing Program (SFP) A program initiated by the U.S. Treasury Department at the request of the Federal Reserve in September 17, 2008. The cash raised from the auction will be used in the various Federal Reserve initiatives to support the financial markets and manage its balance sheet.

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