The Federal Reserve on Thursday shuffled some details around certain liquidity programs, extending the deadlines for a number of facilities through early 2010 in an effort to “promote financial stability and support the flow of credit to households and businesses” as the extent of the contraction continues to unwind. “Conditions in financial markets have improved in recent months, but market functioning in many areas remains impaired and seems likely to be strained for some time,” Fed officials said in a media statement. The Term Asset-Backed Securities Loan Facility (TALF) kept its Dec. 31, 2009 deadline, however, and the Fed’s announcement was quiet on that particular program. The Term Auction Facility (TAF), which has no deadline, saw its biweekly funds reduce from $150bn to $125bn as  part of the modification actions. Wholesale funding markets have improved in recent months, and amounts bid at TAF auctions has declined as a result, necessitating an easing back on the program funding, the Fed said. While the Fed prepared to extend and modify some liquidity programs, the Federal Reserve Bank of New York continued with its agency mortgage-backed securities (MBS) purchases. The NY Fed bought up $23.75bn of MBS in the week ending June 24: $8.8bn from Freddie Mac (FRE), $11.4bn from Fannie Mae (FNM) and $3.55bn from Ginnie Mae. The weekly purchases favored 30-year MBs with 4.5% coupons. Of its $15.2bn purchases of this product, $4.6bn settles on its balance sheet in July and the remaining $10.6bn settles in August. As an ongoing part of the Fed’s participation in the so-called “dollar roll” market — a purchase agreement where the seller traditionally sells the security now under an agreement to buy it back in the future at a lower price — the NY Fed noted $1.5bn of MBS sales in the same week: $400m of 40-year 4.5s, $1bn of 30-year 5s and $100m of 15-year 4s, all of which settles in June. The purchases and sales, although constantly rolling on and off the Fed’s books, have made a lasting mark on the central bank’s balance sheet, which shows a $58.52bn decline in the week ending June 24, to a total $1.99trn. The balance sheet might be down from last week, but it’s up $1.12trn from the year-ago week ending June 25, 2008. The hike from last year’s balance reflects the tremendous liquidity efforts out of the Fed, with MBS held outright contributing $467.11bn to the total. Write to Diana Golobay. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

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