New debt derivatives auction by Fed starts today

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The Kin

From ForexFactory

The Fed Inflates Through Debt Derivatives
You may have thought that there was no way the Fed could pump more USD into the market to ease the credit crunch but you would be wrong. The Fed has options facilities that they can use to sell an option to buy debt at a future date (usually at quarter end). These are rare and vary in size and they are typically used specifically when the Fed anticipates a crisis in the near term. The auction is supposed to help the primary dealers (Citi, BoA, etc.) to prepare for liquidity needs.

The auction for these options to get debt will occur on the 27th of August and 10th of September. Most of the market is unaware that this is going to take place but on the day of the auction you can bet that traders will be paying attention to the success or failure of the offering. That means we have a head's up on some potentially serious volatility in the near term. In the video I will walk through the potential implications in the forex.
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From the Fed website.............



Release Date: August 26, 2008

For release at 10:00 a.m. EDT
On August 25, 2008, the Federal Reserve conducted an auction of $75 billion in 28-day credit through its Term Auction Facility. Following are the results of the auction:

Stop-out rate: 2.380 percent

Total propositions submitted: $84.168 billion
Total propositions accepted: $75.000
Bid/cover ratio: 1.12

Number of bidders: 66


Bids at the stop-out rate were prorated at 64.10% and resulting awards were rounded to the nearest $10,000 (except that all awards below $10,000 are rounded up to $10,000).

The awarded loans will settle on August 28, 2008, and will mature on September 25, 2008. The stop-out rate shown above will apply to all awarded loans.

Institutions that submitted winning bids will be contacted by their respective Reserve Banks by 11:30 a.m. EDT on August 26, 2008. Participants have until 12:30 p.m. EDT on August 26, 2008, to inform their local Reserve Bank of any error.
 
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