Today's Surprise Gift - The Fed Auction Facility Program
Just received this from one of our strategic partners regarding today's decision on the "Fed Auction Facility Program"...
The markets were looking for a holiday treat yesterday by way of a 50 basis point Fed cut in the Discount Rate. And when the news arrived that the cut was only 25 basis points, stock traders threw a tantrum. But this morning, a surprise gift arrived - the Fed announced a plan to help inject $40 Billion into the markets by opening a new auction facility. The Fed said, "Under the term-auction facility program, the Fed will auction term funds to depository institutions against a wide variety of collateral that can be used to secure loans at the discount window." This means the Fed will lend money to banks for shorter terms and these banks will be able to borrow against a wider range of collateral.
The first of these Fed auctions will be on Monday, December 17, when they release $20 Billion in 28 day paper. The 28-day term for these funds will help ease some pressure in the money markets and increase liquidity in the frozen short-term commercial paper market. This may also hopefully narrow the higher spreads in Libor rates.
Mike Weldy, CMPS
Certified Mortgage Planning Specialist
CTX Mortgage Company
(480) 538-4959 Direct
(602) 686-0806 Mobile
(866) 402-6367 Fax
(800) 844-5626 Toll Free
mike.weldy@ctxmort.com