Fed sets 70% limit per security purchase

The Federal Reserve said it will limit its purchases to 70 per cent of any single Treasury security as part of its plan to expand its balance sheet that’s known as quantitative easing.

The central bank had temporarily relaxed its 35 per cent limit in November when announcing additional purchases of $600 billion of Treasuries through June. The New York Fed in a statement today gave allowable purchase percentages for three brackets in its system open market account, or SOMA, consisting of securities it holds, from more than 30 per cent to 70 per cent.

The Fed has acquired about $137.5 billion of Treasuries since it resumed buying US government debt on November 12. The central bank may purchase as much as $17 billion in debt through two open-market operation today, the largest amount since it restarted the programme after completing $1.7 trillion in debt purchases in March.

“This gives some clarification on what the end game is for the Fed with regard to individual security purchases,” said Thomas Simons, a government-debt economist in New York at Jefferies Group Inc, one of the 18 primary dealer that trade with the central bank. “There are some issues that the Fed holds over 40 per cent and people were wondering if they would remain cheap if there was no liquidity because the Fed owns them all. Now not only can the Fed not own 100 per cent of an issue, it will also take them considerably longer to increase its holdings.”