Monday, July 20, 2009

Treasury Auction for Supplementary Financing Program

As I was updating the result of today's Treasury auction for my other blog, I noticed an interesting announcement from the Treasury Department.

The Treasury Department, in addition to today's two auctions, will hold three more auctions this week. One is 4-week bill tomorrow. The other two are what's interesting.

The Treasury is auctioning two batches of 70-day Cash Management Bills (CMB), one for $35 billion (July 22) and the other for $30 billion (July 24), as part of Supplementary Financing Program. I haven't paid much attention to Cash Management Bill auctions, as I thought they are temporary borrowings by the Treasury to fill the monthly government budget shortfalls.

So what is "Supplementary Financing Program (SFP)"? It is a temporary program announced by the Treasury Department on September 17, 2008 (one day after AIG was bailed out by the Federal Reserve) basically to help out the Federal Reserve. The Treasury Department issues debt, and the money goes to the Federal Reserve for whatever the Federal Reserve is doing (no one knows for sure) to stabilize the financial markets.

So I took a look at the auction results for CMBs this year, and almost all of them have been for this SFP (i.e. for the benefit of the Federal Reserve). CMB auctions for the SFP have been held for the following dates, amounts either $30 billion or $35 billion:

  • January 7, 14, 21, 28
  • February 4
  • March 4, 6, 18, 20
  • April 1, 3, 30
  • May 13, 15, 21
  • June 3, 5
  • July 15, 22 (to be held), 24 (to be held)

So the Federal Reserve continues to need cash injection to the tune of $60 to 120 billion a month, even though the financial markets are supposed to have stabilized. What are they spending the money for?


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