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100 | <s>[INST] This is due to several factors including very unfavorable fundamentals for housing, a high level of uncertainty about [/INST] the ultimate level of losses, and an overhang of product for sale, both currently and prospectively. In our discussions with market participants, unleveraged players have been unwilling to step in to buy “cheap” assets for several reasons. First, there are few signs that housing is close to a bottom. </s> |
101 | <s>[INST] The collateral funding pressures have been particularly evident for residential-mortgage- backed securities collateral. This is due to several factors including very unfavorable fundamentals for housing, a high level of uncertainty about [/INST] the ultimate level of losses, and an overhang of product for sale, both currently and prospectively. In our discussions with market participants, unleveraged players have been unwilling to step in to buy “cheap” assets for several reasons. </s> |
102 | <s>[INST] In our discussions with market participants, unleveraged players have been unwilling [/INST] to step in to buy “cheap” assets for several reasons. First, there are few signs that housing is close to a bottom. Second, a significant amount of product sits in weak hands and, thus, could be dumped on the market. </s> |
103 | <s>[INST] This is due to several factors including very unfavorable fundamentals for housing, a high level of uncertainty about the ultimate level of losses, and an overhang of product for sale, both currently and prospectively. In our discussions with market participants, unleveraged players have been unwilling [/INST] to step in to buy “cheap” assets for several reasons. First, there are few signs that housing is close to a bottom. </s> |
104 | <s>[INST] First, there are few signs that housing [/INST] is close to a bottom. Second, a significant amount of product sits in weak hands and, thus, could be dumped on the market. Third, this particular asset class has characteristics that exacerbate price volatility and, therefore, risk. </s> |
105 | <s>[INST] In our discussions with market participants, unleveraged players have been unwilling to step in to buy “cheap” assets for several reasons. First, there are few signs that housing [/INST] is close to a bottom. Second, a significant amount of product sits in weak hands and, thus, could be dumped on the market. </s> |
106 | <s>[INST] Second, a significant amount of product sits in weak hands [/INST] and, thus, could be dumped on the market. Third, this particular asset class has characteristics that exacerbate price volatility and, therefore, risk. For example, when spreads wid en and yields climb, prepayment speeds slow. </s> |
107 | <s>[INST] First, there are few signs that housing is close to a bottom. Second, a significant amount of product sits in weak hands [/INST] and, thus, could be dumped on the market. Third, this particular asset class has characteristics that exacerbate price volatility and, therefore, risk. </s> |
108 | <s>[INST] Third, this particular asset class has characteristics that [/INST] exacerbate price volatility and, therefore, risk. For example, when spreads wid en and yields climb, prepayment speeds slow. This extends duration. </s> |
109 | <s>[INST] Second, a significant amount of product sits in weak hands and, thus, could be dumped on the market. Third, this particular asset class has characteristics that [/INST] exacerbate price volatility and, therefore, risk. For example, when spreads wid en and yields climb, prepayment speeds slow. </s> |
110 | <s>[INST] For example, when spreads wid en and [/INST] yields climb, prepayment speeds slow. This extends duration. When the yield curve is upward sloping for longer maturities, the rise in duration generates an increase in yields. </s> |
111 | <s>[INST] Third, this particular asset class has characteristics that exacerbate price volatility and, therefore, risk. For example, when spreads wid en and [/INST] yields climb, prepayment speeds slow. This extends duration. </s> |
112 | <s>[INST] When the yield curve is upward sloping for longer maturities, [/INST] the rise in duration generates an increase in yields. The rise in yields also reduces housing affordability, which puts further downward pressure on home prices, increasing prospective losses on the mortgage loans that underpin the securities. Signs of distress in this market include the following. </s> |
113 | <s>[INST] This extends duration. When the yield curve is upward sloping for longer maturities, [/INST] the rise in duration generates an increase in yields. The rise in yields also reduces housing affordability, which puts further downward pressure on home prices, increasing prospective losses on the mortgage loans that underpin the securities. </s> |
114 | <s>[INST] The rise in yields also reduces housing affordability, which puts further downward pressure on [/INST] home prices, increasing prospective losses on the mortgage loans that underpin the securities. Signs of distress in this market include the following. First, a sharp widening in option-adjusted mortgage spreads— as shown in exhibit 2, option-adjusted spreads for conforming fixed -rate mortgages have widened considerably since the January 30-31 FOMC meeting , though they have come in quite a bit over the past couple of days. </s> |
115 | <s>[INST] When the yield curve is upward sloping for longer maturities, the rise in duration generates an increase in yields. The rise in yields also reduces housing affordability, which puts further downward pressure on [/INST] home prices, increasing prospective losses on the mortgage loans that underpin the securities. Signs of distress in this market include the following. </s> |
116 | <s>[INST] First, a sharp widening in option-adjusted mortgage spreads— as shown in exhibit 2, option-adjusted spreads for conforming fixed -rate mortgages have widened considerably [/INST] since the January 30-31 FOMC meeting , though they have come in quite a bit over the past couple of days. That’s good news. Second, jumbo mortgage spreads relative to conforming mortgages rates remain very wide. </s> |
117 | <s>[INST] Signs of distress in this market include the following. First, a sharp widening in option-adjusted mortgage spreads— as shown in exhibit 2, option-adjusted spreads for conforming fixed -rate mortgages have widened considerably [/INST] since the January 30-31 FOMC meeting , though they have come in quite a bit over the past couple of days. That’s good news. </s> |
118 | <s>[INST] Second, jumbo mortgage spreads relative to conforming [/INST] mortgages rates remain very wide. As shown in exhibit 3, this spread has averaged more than 100 basis points this year. The current yield on prime jumbo loans is around 7 percent , a margin of about 3½ percentage points over ten -year Treasu ry note yields. </s> |
119 | <s>[INST] That’s good news. Second, jumbo mortgage spreads relative to conforming [/INST] mortgages rates remain very wide. As shown in exhibit 3, this spread has averaged more than 100 basis points this year. </s> |
120 | <s>[INST] As shown in exhibit 3, this spread has averaged [/INST] more than 100 basis points this year. The current yield on prime jumbo loans is around 7 percent , a margin of about 3½ percentage points over ten -year Treasu ry note yields. Third, mortgage securities prices continue to fall. </s> |
121 | <s>[INST] Second, jumbo mortgage spreads relative to conforming mortgages rates remain very wide. As shown in exhibit 3, this spread has averaged [/INST] more than 100 basis points this year. The current yield on prime jumbo loans is around 7 percent , a margin of about 3½ percentage points over ten -year Treasu ry note yields. </s> |
122 | <s>[INST] The current yield on prime jumbo loans is around 7 percent , a margin [/INST] of about 3½ percentage points over ten -year Treasu ry note yields. Third, mortgage securities prices continue to fall. For example, as shown in exhibit 4, the prices for AAA -rated tranches of the ABX 07 -01 vintage continue to decline. </s> |
123 | <s>[INST] As shown in exhibit 3, this spread has averaged more than 100 basis points this year. The current yield on prime jumbo loans is around 7 percent , a margin [/INST] of about 3½ percentage points over ten -year Treasu ry note yields. Third, mortgage securities prices continue to fall. </s> |
124 | <s>[INST] For example, as shown in exhibit 4, the prices for AAA -rated [/INST] tranches of the ABX 07 -01 vintage continue to decline. Fourth, Fannie Mae and Freddie Mac reported large fourth-quarter loss es, and their stock prices and CDS spreads have performed accordingly (exhibit 5). The sharp decline in the equity prices has made the companies reluctant to raise new capital , despite the prospects of higher-margin new business, because additional share issuance at the current share prices would lead to massive dilution for existing shareholders. </s> |
125 | <s>[INST] Third, mortgage securities prices continue to fall. For example, as shown in exhibit 4, the prices for AAA -rated [/INST] tranches of the ABX 07 -01 vintage continue to decline. Fourth, Fannie Mae and Freddie Mac reported large fourth-quarter loss es, and their stock prices and CDS spreads have performed accordingly (exhibit 5). </s> |
126 | <s>[INST] Fourth, Fannie Mae and Freddie Mac reported large fourth-quarter loss es, and [/INST] their stock prices and CDS spreads have performed accordingly (exhibit 5). The sharp decline in the equity prices has made the companies reluctant to raise new capital , despite the prospects of higher-margin new business, because additional share issuance at the current share prices would lead to massive dilution for existing shareholders. Fifth, t he yield levels on many mortgage -backed securities have climbed significantly above the yield on the underlying mortgages that underpin the securities. </s> |
127 | <s>[INST] For example, as shown in exhibit 4, the prices for AAA -rated tranches of the ABX 07 -01 vintage continue to decline. Fourth, Fannie Mae and Freddie Mac reported large fourth-quarter loss es, and [/INST] their stock prices and CDS spreads have performed accordingly (exhibit 5). The sharp decline in the equity prices has made the companies reluctant to raise new capital , despite the prospects of higher-margin new business, because additional share issuance at the current share prices would lead to massive dilution for existing shareholders. </s> |
128 | <s>[INST] The sharp decline in the equity prices has made the companies reluctant to raise new capital , despite the prospects of [/INST] higher-margin new business, because additional share issuance at the current share prices would lead to massive dilution for existing shareholders. Fifth, t he yield levels on many mortgage -backed securities have climbed significantly above the yield on the underlying mortgages that underpin the securities. This is the opposite of how securitization is supposed to work. </s> |
129 | <s>[INST] Fourth, Fannie Mae and Freddie Mac reported large fourth-quarter loss es, and their stock prices and CDS spreads have performed accordingly (exhibit 5). The sharp decline in the equity prices has made the companies reluctant to raise new capital , despite the prospects of [/INST] higher-margin new business, because additional share issuance at the current share prices would lead to massive dilution for existing shareholders. Fifth, t he yield levels on many mortgage -backed securities have climbed significantly above the yield on the underlying mortgages that underpin the securities. </s> |
130 | <s>[INST] Fifth, t he yield levels on many mortgage -backed securities have climbed significantly [/INST] above the yield on the underlying mortgages that underpin the securities. This is the opposite of how securitization is supposed to work. This March 18, 20085 of 127 phenomenon reflects the glut of supply of such securities on the market and the added risk premium attached to assets that are typically held on a mark -to-market basis. </s> |
131 | <s>[INST] The sharp decline in the equity prices has made the companies reluctant to raise new capital , despite the prospects of higher-margin new business, because additional share issuance at the current share prices would lead to massive dilution for existing shareholders. Fifth, t he yield levels on many mortgage -backed securities have climbed significantly [/INST] above the yield on the underlying mortgages that underpin the securities. This is the opposite of how securitization is supposed to work. </s> |
132 | <s>[INST] This is the opposite of how [/INST] securitization is supposed to work. This March 18, 20085 of 127 phenomenon reflects the glut of supply of such securities on the market and the added risk premium attached to assets that are typically held on a mark -to-market basis. Although the re sidential mortgage market is the epicenter of the crisis, distress has been evident much more broadly—with the municipal market fully implicated in the period since the January meeting. </s> |
133 | <s>[INST] Fifth, t he yield levels on many mortgage -backed securities have climbed significantly above the yield on the underlying mortgages that underpin the securities. This is the opposite of how [/INST] securitization is supposed to work. This March 18, 20085 of 127 phenomenon reflects the glut of supply of such securities on the market and the added risk premium attached to assets that are typically held on a mark -to-market basis. </s> |
134 | <s>[INST] This March 18, 20085 of 127 phenomenon reflects the glut of supply of such securities on the market [/INST] and the added risk premium attached to assets that are typically held on a mark -to-market basis. Although the re sidential mortgage market is the epicenter of the crisis, distress has been evident much more broadly—with the municipal market fully implicated in the period since the January meeting. The deleveraging process evident among financial intermediaries operating outside the commercial banking system has led to a widespread repricing of financial assets. </s> |
135 | <s>[INST] This is the opposite of how securitization is supposed to work. This March 18, 20085 of 127 phenomenon reflects the glut of supply of such securities on the market [/INST] and the added risk premium attached to assets that are typically held on a mark -to-market basis. Although the re sidential mortgage market is the epicenter of the crisis, distress has been evident much more broadly—with the municipal market fully implicated in the period since the January meeting. </s> |
136 | <s>[INST] Although the re sidential mortgage market is the epicenter of the crisis, distress has been evident [/INST] much more broadly—with the municipal market fully implicated in the period since the January meeting. The deleveraging process evident among financial intermediaries operating outside the commercial banking system has led to a widespread repricing of financial assets. When available leverage drops, risk -adjusted spreads have to rise for leveraged investors to earn the same targeted rate of return as before. </s> |
137 | <s>[INST] This March 18, 20085 of 127 phenomenon reflects the glut of supply of such securities on the market and the added risk premium attached to assets that are typically held on a mark -to-market basis. Although the re sidential mortgage market is the epicenter of the crisis, distress has been evident [/INST] much more broadly—with the municipal market fully implicated in the period since the January meeting. The deleveraging process evident among financial intermediaries operating outside the commercial banking system has led to a widespread repricing of financial assets. </s> |
138 | <s>[INST] The deleveraging process evident among financial intermediaries operating outside the commercial banking [/INST] system has led to a widespread repricing of financial assets. When available leverage drops, risk -adjusted spreads have to rise for leveraged investors to earn the same targeted rate of return as before. This helps explain why the problems in the residential mortgage market have infected financial markets more generally, leading to wider credit spreads ( exhibits 6 and 7) and lower equity prices (exhibit 8) both in the U nited States and abroad. </s> |
139 | <s>[INST] Although the re sidential mortgage market is the epicenter of the crisis, distress has been evident much more broadly—with the municipal market fully implicated in the period since the January meeting. The deleveraging process evident among financial intermediaries operating outside the commercial banking [/INST] system has led to a widespread repricing of financial assets. When available leverage drops, risk -adjusted spreads have to rise for leveraged investors to earn the same targeted rate of return as before. </s> |
140 | <s>[INST] When available leverage drops, risk -adjusted spreads have to rise for leveraged [/INST] investors to earn the same targeted rate of return as before. This helps explain why the problems in the residential mortgage market have infected financial markets more generally, leading to wider credit spreads ( exhibits 6 and 7) and lower equity prices (exhibit 8) both in the U nited States and abroad. As leverage is reduced and spreads widen, financial arbitrage implies that all assets should reprice. </s> |
141 | <s>[INST] The deleveraging process evident among financial intermediaries operating outside the commercial banking system has led to a widespread repricing of financial assets. When available leverage drops, risk -adjusted spreads have to rise for leveraged [/INST] investors to earn the same targeted rate of return as before. This helps explain why the problems in the residential mortgage market have infected financial markets more generally, leading to wider credit spreads ( exhibits 6 and 7) and lower equity prices (exhibit 8) both in the U nited States and abroad. </s> |
142 | <s>[INST] This helps explain why the problems in the residential mortgage market have infected financial markets more generally, leading to wider credit [/INST] spreads ( exhibits 6 and 7) and lower equity prices (exhibit 8) both in the U nited States and abroad. As leverage is reduced and spreads widen, financial arbitrage implies that all assets should reprice. The risk -adjusted returns from holding different asset types should converge— recognizing that the degree of leverage that is available in markets may differ across asset classes in accordance with divergences in price volatility, liquidity, transparency, and other characteristics. </s> |
143 | <s>[INST] When available leverage drops, risk -adjusted spreads have to rise for leveraged investors to earn the same targeted rate of return as before. This helps explain why the problems in the residential mortgage market have infected financial markets more generally, leading to wider credit [/INST] spreads ( exhibits 6 and 7) and lower equity prices (exhibit 8) both in the U nited States and abroad. As leverage is reduced and spreads widen, financial arbitrage implies that all assets should reprice. </s> |
144 | <s>[INST] As leverage is reduced and spreads widen, financial [/INST] arbitrage implies that all assets should reprice. The risk -adjusted returns from holding different asset types should converge— recognizing that the degree of leverage that is available in markets may differ across asset classes in accordance with divergences in price volatility, liquidity, transparency, and other characteristics. Of course, the notion of convergence to equivalent risk-adjusted returns is an equilibrium concept, and we are not in equilibrium. </s> |
145 | <s>[INST] This helps explain why the problems in the residential mortgage market have infected financial markets more generally, leading to wider credit spreads ( exhibits 6 and 7) and lower equity prices (exhibit 8) both in the U nited States and abroad. As leverage is reduced and spreads widen, financial [/INST] arbitrage implies that all assets should reprice. The risk -adjusted returns from holding different asset types should converge— recognizing that the degree of leverage that is available in markets may differ across asset classes in accordance with divergences in price volatility, liquidity, transparency, and other characteristics. </s> |
146 | <s>[INST] The risk -adjusted returns from holding different asset types should converge— recognizing that the degree of leverage that is available [/INST] in markets may differ across asset classes in accordance with divergences in price volatility, liquidity, transparency, and other characteristics. Of course, the notion of convergence to equivalent risk-adjusted returns is an equilibrium concept, and we are not in equilibrium. The events of the past week underscore that point. </s> |
147 | <s>[INST] As leverage is reduced and spreads widen, financial arbitrage implies that all assets should reprice. The risk -adjusted returns from holding different asset types should converge— recognizing that the degree of leverage that is available [/INST] in markets may differ across asset classes in accordance with divergences in price volatility, liquidity, transparency, and other characteristics. Of course, the notion of convergence to equivalent risk-adjusted returns is an equilibrium concept, and we are not in equilibrium. </s> |
148 | <s>[INST] Of course, the notion of convergence to equivalent risk-adjusted returns is [/INST] an equilibrium concept, and we are not in equilibrium. The events of the past week underscore that point. But there are plenty of other examples of disequilibrium at work . </s> |
149 | <s>[INST] The risk -adjusted returns from holding different asset types should converge— recognizing that the degree of leverage that is available in markets may differ across asset classes in accordance with divergences in price volatility, liquidity, transparency, and other characteristics. Of course, the notion of convergence to equivalent risk-adjusted returns is [/INST] an equilibrium concept, and we are not in equilibrium. The events of the past week underscore that point. </s> |
150 | <s>[INST] But there are plenty of other examples [/INST] of disequilibrium at work . For example, for mortgage-backed securities, the losses implied by the prices of the AAA-rated ABX index tranches appear to be high even relative to the d arkest macroeconomic scenarios. The municipal bond market is also a good example of how market valuations can become unusually depressed when supply increases rapidly. </s> |
151 | <s>[INST] The events of the past week underscore that point. But there are plenty of other examples [/INST] of disequilibrium at work . For example, for mortgage-backed securities, the losses implied by the prices of the AAA-rated ABX index tranches appear to be high even relative to the d arkest macroeconomic scenarios. </s> |
152 | <s>[INST] For example, for mortgage-backed securities, the losses implied by the prices of the AAA-rated ABX [/INST] index tranches appear to be high even relative to the d arkest macroeconomic scenarios. The municipal bond market is also a good example of how market valuations can become unusually depressed when supply increases rapidly. Then the value inherent in the securities becomes broadly known, this mobilizes new mo ney, and risk-adjusted returns come back down relatively quickly. </s> |
153 | <s>[INST] But there are plenty of other examples of disequilibrium at work . For example, for mortgage-backed securities, the losses implied by the prices of the AAA-rated ABX [/INST] index tranches appear to be high even relative to the d arkest macroeconomic scenarios. The municipal bond market is also a good example of how market valuations can become unusually depressed when supply increases rapidly. </s> |
154 | <s>[INST] The municipal bond market is also a good example of how [/INST] market valuations can become unusually depressed when supply increases rapidly. Then the value inherent in the securities becomes broadly known, this mobilizes new mo ney, and risk-adjusted returns come back down relatively quickly. Term funding spreads also indicate greater stress within the financial system. </s> |
155 | <s>[INST] For example, for mortgage-backed securities, the losses implied by the prices of the AAA-rated ABX index tranches appear to be high even relative to the d arkest macroeconomic scenarios. The municipal bond market is also a good example of how [/INST] market valuations can become unusually depressed when supply increases rapidly. Then the value inherent in the securities becomes broadly known, this mobilizes new mo ney, and risk-adjusted returns come back down relatively quickly. </s> |
156 | <s>[INST] Then the value inherent in the securities becomes broadly known, this mobilizes [/INST] new mo ney, and risk-adjusted returns come back down relatively quickly. Term funding spreads also indicate greater stress within the financial system. As shown in exhibits 9 and 10, the spreads between one-month and three -month LIBOR – OIS spreads have widened sharply in recent weeks, even before Bear Stearns’ s demise. </s> |
157 | <s>[INST] The municipal bond market is also a good example of how market valuations can become unusually depressed when supply increases rapidly. Then the value inherent in the securities becomes broadly known, this mobilizes [/INST] new mo ney, and risk-adjusted returns come back down relatively quickly. Term funding spreads also indicate greater stress within the financial system. </s> |
158 | <s>[INST] Term funding spreads also indicate greater [/INST] stress within the financial system. As shown in exhibits 9 and 10, the spreads between one-month and three -month LIBOR – OIS spreads have widened sharply in recent weeks, even before Bear Stearns’ s demise. We are sitting today at 56 basis points for the one-month LIBOR –OIS spread and 77 basis points for the three-month LIBOR –OIS spread, about the same as yesterday morning. </s> |
159 | <s>[INST] Then the value inherent in the securities becomes broadly known, this mobilizes new mo ney, and risk-adjusted returns come back down relatively quickly. Term funding spreads also indicate greater [/INST] stress within the financial system. As shown in exhibits 9 and 10, the spreads between one-month and three -month LIBOR – OIS spreads have widened sharply in recent weeks, even before Bear Stearns’ s demise. </s> |
160 | <s>[INST] As shown in exhibits 9 and 10, the spreads between one-month and three -month LIBOR – [/INST] OIS spreads have widened sharply in recent weeks, even before Bear Stearns’ s demise. We are sitting today at 56 basis points for the one-month LIBOR –OIS spread and 77 basis points for the three-month LIBOR –OIS spread, about the same as yesterday morning. As you are all aware, we have been active in responding to the growing market illiquidity. </s> |
161 | <s>[INST] Term funding spreads also indicate greater stress within the financial system. As shown in exhibits 9 and 10, the spreads between one-month and three -month LIBOR – [/INST] OIS spreads have widened sharply in recent weeks, even before Bear Stearns’ s demise. We are sitting today at 56 basis points for the one-month LIBOR –OIS spread and 77 basis points for the three-month LIBOR –OIS spread, about the same as yesterday morning. </s> |
162 | <s>[INST] We are sitting today at 56 basis points for the one-month LIBOR –OIS spread and 77 [/INST] basis points for the three-month LIBOR –OIS spread, about the same as yesterday morning. As you are all aware, we have been active in responding to the growing market illiquidity. Exhibit 11 illustrates the results of the TAF auctions. </s> |
163 | <s>[INST] As shown in exhibits 9 and 10, the spreads between one-month and three -month LIBOR – OIS spreads have widened sharply in recent weeks, even before Bear Stearns’ s demise. We are sitting today at 56 basis points for the one-month LIBOR –OIS spread and 77 [/INST] basis points for the three-month LIBOR –OIS spread, about the same as yesterday morning. As you are all aware, we have been active in responding to the growing market illiquidity. </s> |
164 | <s>[INST] As you are all aware, we have been active [/INST] in responding to the growing market illiquidity. Exhibit 11 illustrates the results of the TAF auctions. Note how propositions and the number of bidders have increased recently and the spread between the stop -out rate and the OIS rate has risen over the past few weeks. </s> |
165 | <s>[INST] We are sitting today at 56 basis points for the one-month LIBOR –OIS spread and 77 basis points for the three-month LIBOR –OIS spread, about the same as yesterday morning. As you are all aware, we have been active [/INST] in responding to the growing market illiquidity. Exhibit 11 illustrates the results of the TAF auctions. </s> |
166 | <s>[INST] Note how propositions and the number of bidders have increased recently and the spread between the [/INST] stop -out rate and the OIS rate has risen over the past few weeks. Even before the P rimary D ealer C redit F acility was implemented this weekend, we were in the middle of a historic transformation in the Federal Reserve System’s balance sheet. We are increasing the supply of Treasuries held by the public (either outright or borrowed) and reducing the supply of more- illiquid collateral held by the private sector. </s> |
167 | <s>[INST] Exhibit 11 illustrates the results of the TAF auctions. Note how propositions and the number of bidders have increased recently and the spread between the [/INST] stop -out rate and the OIS rate has risen over the past few weeks. Even before the P rimary D ealer C redit F acility was implemented this weekend, we were in the middle of a historic transformation in the Federal Reserve System’s balance sheet. </s> |
168 | <s>[INST] Even before the P rimary D ealer C redit F acility was implemented this weekend, we [/INST] were in the middle of a historic transformation in the Federal Reserve System’s balance sheet. We are increasing the supply of Treasuries held by the public (either outright or borrowed) and reducing the supply of more- illiquid collateral held by the private sector. Even excluding the uncertain impact of PDCF borrowing, this shift will speed up noticeably over the next month or two. </s> |
169 | <s>[INST] Note how propositions and the number of bidders have increased recently and the spread between the stop -out rate and the OIS rate has risen over the past few weeks. Even before the P rimary D ealer C redit F acility was implemented this weekend, we [/INST] were in the middle of a historic transformation in the Federal Reserve System’s balance sheet. We are increasing the supply of Treasuries held by the public (either outright or borrowed) and reducing the supply of more- illiquid collateral held by the private sector. </s> |
170 | <s>[INST] We are increasing the supply of Treasuries held by the public (either outright or borrowed) [/INST] and reducing the supply of more- illiquid collateral held by the private sector. Even excluding the uncertain impact of PDCF borrowing, this shift will speed up noticeably over the next month or two. Our cu rrent plans are to increase the size of the TAF to $100 billion, scale up the single-tranche RP book to $100 billion, renew and increase the size of the foreign currency swaps with the ECB and the SNB March 18, 20086 of 127 to $36 billion outstanding (if fully subscribed), and implement a $200 billion TSLF program. </s> |
171 | <s>[INST] Even before the P rimary D ealer C redit F acility was implemented this weekend, we were in the middle of a historic transformation in the Federal Reserve System’s balance sheet. We are increasing the supply of Treasuries held by the public (either outright or borrowed) [/INST] and reducing the supply of more- illiquid collateral held by the private sector. Even excluding the uncertain impact of PDCF borrowing, this shift will speed up noticeably over the next month or two. </s> |
172 | <s>[INST] Even excluding the uncertain impact of PDCF borrowing, this shift will [/INST] speed up noticeably over the next month or two. Our cu rrent plans are to increase the size of the TAF to $100 billion, scale up the single-tranche RP book to $100 billion, renew and increase the size of the foreign currency swaps with the ECB and the SNB March 18, 20086 of 127 to $36 billion outstanding (if fully subscribed), and implement a $200 billion TSLF program. Exhibit 12 shows how these programs are likely to change the composition of the Federal Reserve’s SOMA portfolio. </s> |
173 | <s>[INST] We are increasing the supply of Treasuries held by the public (either outright or borrowed) and reducing the supply of more- illiquid collateral held by the private sector. Even excluding the uncertain impact of PDCF borrowing, this shift will [/INST] speed up noticeably over the next month or two. Our cu rrent plans are to increase the size of the TAF to $100 billion, scale up the single-tranche RP book to $100 billion, renew and increase the size of the foreign currency swaps with the ECB and the SNB March 18, 20086 of 127 to $36 billion outstanding (if fully subscribed), and implement a $200 billion TSLF program. </s> |
174 | <s>[INST] Our cu rrent plans are to increase the size of the TAF to $100 billion, scale up the single-tranche RP book to $100 billion, renew and increase the size of [/INST] the foreign currency swaps with the ECB and the SNB March 18, 20086 of 127 to $36 billion outstanding (if fully subscribed), and implement a $200 billion TSLF program. Exhibit 12 shows how these programs are likely to change the composition of the Federal Reserve’s SOMA portfolio. As can be seen, when all the current programs are fully phased in by May, Treasury holdings will have shrunk to about 45 percent of the total portfolio, down from about 97 percent last July. </s> |
175 | <s>[INST] Even excluding the uncertain impact of PDCF borrowing, this shift will speed up noticeably over the next month or two. Our cu rrent plans are to increase the size of the TAF to $100 billion, scale up the single-tranche RP book to $100 billion, renew and increase the size of [/INST] the foreign currency swaps with the ECB and the SNB March 18, 20086 of 127 to $36 billion outstanding (if fully subscribed), and implement a $200 billion TSLF program. Exhibit 12 shows how these programs are likely to change the composition of the Federal Reserve’s SOMA portfolio. </s> |
176 | <s>[INST] Exhibit 12 shows how these programs are likely to change [/INST] the composition of the Federal Reserve’s SOMA portfolio. As can be seen, when all the current programs are fully phased in by May, Treasury holdings will have shrunk to about 45 percent of the total portfolio, down from about 97 percent last July. At the same time that financial markets have been under severe stress and the macroeconomic growth outlook has deteriorated, the inflation news has also been distur bing. </s> |
177 | <s>[INST] Our cu rrent plans are to increase the size of the TAF to $100 billion, scale up the single-tranche RP book to $100 billion, renew and increase the size of the foreign currency swaps with the ECB and the SNB March 18, 20086 of 127 to $36 billion outstanding (if fully subscribed), and implement a $200 billion TSLF program. Exhibit 12 shows how these programs are likely to change [/INST] the composition of the Federal Reserve’s SOMA portfolio. As can be seen, when all the current programs are fully phased in by May, Treasury holdings will have shrunk to about 45 percent of the total portfolio, down from about 97 percent last July. </s> |
178 | <s>[INST] As can be seen, when all the current programs are fully phased in by May, Treasury holdings will [/INST] have shrunk to about 45 percent of the total portfolio, down from about 97 percent last July. At the same time that financial markets have been under severe stress and the macroeconomic growth outlook has deteriorated, the inflation news has also been distur bing. Several market -based indicators are adding to investors’ concerns about the inflation outlook. </s> |
179 | <s>[INST] Exhibit 12 shows how these programs are likely to change the composition of the Federal Reserve’s SOMA portfolio. As can be seen, when all the current programs are fully phased in by May, Treasury holdings will [/INST] have shrunk to about 45 percent of the total portfolio, down from about 97 percent last July. At the same time that financial markets have been under severe stress and the macroeconomic growth outlook has deteriorated, the inflation news has also been distur bing. </s> |
180 | <s>[INST] At the same time that financial markets have been under severe stress and the [/INST] macroeconomic growth outlook has deteriorated, the inflation news has also been distur bing. Several market -based indicators are adding to investors’ concerns about the inflation outlook. First, commodity prices have increased sharply. </s> |
181 | <s>[INST] As can be seen, when all the current programs are fully phased in by May, Treasury holdings will have shrunk to about 45 percent of the total portfolio, down from about 97 percent last July. At the same time that financial markets have been under severe stress and the [/INST] macroeconomic growth outlook has deteriorated, the inflation news has also been distur bing. Several market -based indicators are adding to investors’ concerns about the inflation outlook. </s> |
182 | <s>[INST] Several market -based indicators are adding to [/INST] investors’ concerns about the inflation outlook. First, commodity prices have increased sharply. As shown in exhibit 13, the increases have been concentrated in both energy and agricultural prices. </s> |
183 | <s>[INST] At the same time that financial markets have been under severe stress and the macroeconomic growth outlook has deteriorated, the inflation news has also been distur bing. Several market -based indicators are adding to [/INST] investors’ concerns about the inflation outlook. First, commodity prices have increased sharply. </s> |
184 | <s>[INST] As shown in exhibit 13, the increases have been [/INST] concentrated in both energy and agricultural prices. Of course, subsidies to stimulate the production of ethanol from corn have been an important factor. By diverting corn production to this purpose, the linkage between energy and grain prices has been significantly strengthened. </s> |
185 | <s>[INST] First, commodity prices have increased sharply. As shown in exhibit 13, the increases have been [/INST] concentrated in both energy and agricultural prices. Of course, subsidies to stimulate the production of ethanol from corn have been an important factor. </s> |
186 | <s>[INST] Of course, subsidies to stimulate the production of ethanol [/INST] from corn have been an important factor. By diverting corn production to this purpose, the linkage between energy and grain prices has been significantly strengthened. Second, the dollar, after a period of stability that lasted from mid -December into February , has begun to weaken anew (exhibit 14). </s> |
187 | <s>[INST] As shown in exhibit 13, the increases have been concentrated in both energy and agricultural prices. Of course, subsidies to stimulate the production of ethanol [/INST] from corn have been an important factor. By diverting corn production to this purpose, the linkage between energy and grain prices has been significantly strengthened. </s> |
188 | <s>[INST] By diverting corn production to this purpose, the linkage between [/INST] energy and grain prices has been significantly strengthened. Second, the dollar, after a period of stability that lasted from mid -December into February , has begun to weaken anew (exhibit 14). This has gotten considerable attention in the press and abroad as the dollar has hit new lows against the euro and has fallen below 100 against the yen. </s> |
189 | <s>[INST] Of course, subsidies to stimulate the production of ethanol from corn have been an important factor. By diverting corn production to this purpose, the linkage between [/INST] energy and grain prices has been significantly strengthened. Second, the dollar, after a period of stability that lasted from mid -December into February , has begun to weaken anew (exhibit 14). </s> |
190 | <s>[INST] Second, the dollar, after a period of stability that lasted from mid [/INST] -December into February , has begun to weaken anew (exhibit 14). This has gotten considerable attention in the press and abroad as the dollar has hit new lows against the euro and has fallen below 100 against the yen. Up to now, the decline has generally been orderly, and the downward slope of the broad real trade-weighted dollar trajectory shown in exhibit 14 has not changed much. </s> |
191 | <s>[INST] By diverting corn production to this purpose, the linkage between energy and grain prices has been significantly strengthened. Second, the dollar, after a period of stability that lasted from mid [/INST] -December into February , has begun to weaken anew (exhibit 14). This has gotten considerable attention in the press and abroad as the dollar has hit new lows against the euro and has fallen below 100 against the yen. </s> |
192 | <s>[INST] This has gotten considerable attention in the press and abroad as the dollar has hit [/INST] new lows against the euro and has fallen below 100 against the yen. Up to now, the decline has generally been orderly, and the downward slope of the broad real trade-weighted dollar trajectory shown in exhibit 14 has not changed much. The foreign exchange markets are clearly very skittish. </s> |
193 | <s>[INST] Second, the dollar, after a period of stability that lasted from mid -December into February , has begun to weaken anew (exhibit 14). This has gotten considerable attention in the press and abroad as the dollar has hit [/INST] new lows against the euro and has fallen below 100 against the yen. Up to now, the decline has generally been orderly, and the downward slope of the broad real trade-weighted dollar trajectory shown in exhibit 14 has not changed much. </s> |
194 | <s>[INST] Up to now, the decline has generally been orderly, and the downward slope of the [/INST] broad real trade-weighted dollar trajectory shown in exhibit 14 has not changed much. The foreign exchange markets are clearly very skittish. In particular, there has been considerable focus on China and the Gulf Cooperation Council (GCC) countries and their willingness to maintain their pegs against the dollar. </s> |
195 | <s>[INST] This has gotten considerable attention in the press and abroad as the dollar has hit new lows against the euro and has fallen below 100 against the yen. Up to now, the decline has generally been orderly, and the downward slope of the [/INST] broad real trade-weighted dollar trajectory shown in exhibit 14 has not changed much. The foreign exchange markets are clearly very skittish. </s> |
196 | <s>[INST] In particular, there has been considerable focus on China and the Gulf Cooperation Council [/INST] (GCC) countries and their willingness to maintain their pegs against the dollar. For China, investors expect its crawling peg to move faster. As shown in exhibit 15, the Chinese yuan is now expected to appreciate about 11 percent against the dollar over the next year, up from an 8 percent pace at the beginning of the year. </s> |
197 | <s>[INST] The foreign exchange markets are clearly very skittish. In particular, there has been considerable focus on China and the Gulf Cooperation Council [/INST] (GCC) countries and their willingness to maintain their pegs against the dollar. For China, investors expect its crawling peg to move faster. </s> |
198 | <s>[INST] As shown in exhibit 15, the Chinese yuan is now expected to appreciate about 11 percent against the [/INST] dollar over the next year, up from an 8 percent pace at the beginning of the year. For the GCC countries, there is speculation that some of these countries might decouple from the dollar. However, on a one- year-forward basis, market participants are currently building in only a couple of percentage points of expected appreciation. </s> |
199 | <s>[INST] For China, investors expect its crawling peg to move faster. As shown in exhibit 15, the Chinese yuan is now expected to appreciate about 11 percent against the [/INST] dollar over the next year, up from an 8 percent pace at the beginning of the year. For the GCC countries, there is speculation that some of these countries might decouple from the dollar. </s> |
Subsets and Splits