No market disruption from QE3 so far, Fed official says

By Jonathan Spicer

NEW YORK (Reuters) - The Federal Reserve's massive asset purchases have so far not disrupted markets as some have feared and the bonds remain readily available, according to the U.S. central bank official responsible for running the quantitative easing program.

Simon Potter, head of the New York Fed's open market operations division, said "purchases of both Treasury securities and MBS have gone smoothly so far, and market liquidity seems to be holding up well," according to a copy of his prepared remarks to bankers.

"So far, there seems to be little evidence that the current pace of purchases is straining the market's ability to deliver securities to us," he added in a private speech to the Fed's so-called primary dealers.

Worries have grown that the Fed's third round of quantitative easing, known as QE3, will disrupt the normal functioning of markets.

The U.S. central bank is buying $45 billion in Treasuries and $40 billion in mortgage-backed securities each month in an effort to spur investment and hiring and to boost tepid U.S. economic growth.

Potter said his team is monitoring trading volumes, bid-ask spreads, settlement fails and trade sizes as well as the concentration of holdings of certain securities, among other factors.

The Fed halts Treasury purchases once its holdings reach 70 percent of outstanding stock of specific securities, he said. In the MBS market, he added, the Fed purchases about 50 percent of the monthly gross issuance.

(Reporting by Jonathan Spicer; editing by David Gregorio, G Crosse)