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Authorized for public release by the FOMC Secretariat on 8/21/2020 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C. 20551 July 9, 1974 CONFIDENTIAL (FR) TO: Federal Open Market Committee FROM: Arthur L. Broida Enclosed is a memorandum from the System Account Manager dated today and entitled "Outright System Activity in the Agency It is contemplated that the recommendations contained in Market." the memorandum will be considered at the meeting of the Committee to be held on July 16, 1974. Attached to Mr. Holmes' memorandum is a memorandum by Mr. Ozog of the New York Bank which reviews outright System operations in agency issues since their inception in September 1971. Mr. Ozog's paper was prepared partly in response to an informal suggestion by President Eastburn several months ago that a review of the System's experience with agency operations would be desirable from time to time. Enclosure Authorized for public release by the FOMC Secretariat on 8/21/2020 July 9, 1974 CONFIDENTIAL (FR) TO: Federal Open Market Committee FROM: Alan R. Holmes SUBJECT: Outright System Activity in the Agency Market Nearly three years of Desk experience with outright operations in the agency market have shown that these transactions are a valuable tool for implementing monetary policy. The Desk has been an active participant in the agency market and the operations have contributed significantly to our flexibility and efficiency in responding to reserve needs. In frequency and magnitude, agency transactions approx- imate our operations in Treasury notes and bonds. The market's ability to accommodate System activity has met our expectations and in turn the System has contributed something positive to the market's over-all performance. Desk transactions in the agency market are demanding of time and energy but the operational burdens have not materially diminished the usefulness of the technique. Beginning in September 1971, the System has constructed a modest portfolio of agency securities which, at the end of June 1974, totaled $2.9 billion or 3.5 per cent of the System's outright holdings of Treasury and agency securities. The portfolio is relatively well balanced in terms of maturity and issuer representation. While the portfolio is not a perfect reflection of the array of issues eligible for purchase, the portfolio is well proportioned, given the constraints of availability in the market, reserve objectives, and Committee guidelines. Authorized for public release by the FOMC Secretariat on 8/21/2020 The rules for operations established by the Committee in 1971 have served Desk activity well and System transactions have not resulted in our domination of the market nor produced distortions in the market. In light of the System's experience to date, however, it is timely to consider certain modifications in the Committee's guidelines in order to increase the usefulness of agency operations. Specifically, the Desk would find it advantageous to be able to roll over maturing agency issue holdings and also to purchase new securities as early as the issue date rather than two weeks after issue date as is now stipulated in the guidelines. Rolling over maturing issues (as we typically do with maturing Treasury coupon issues) would avoid the negative reserve impact that automatically ensues when issues are redeemed. The 1971 guidelines precluded Desk participation in other than "seasoned" issues, but this expression of concern over the possibility that the System would unduly influence the primary distribution of agency securities, while appropriate in the case of a new and untested operation, no longer appears warranted. The ability to purchase new agency issues on the issue date would increase the availability of agency issues for purchase by the Federal Reserve since the most active market trading is usually in the most recent issues. Such operations would generally parallel our operations in Governments where, under "even keel" considerations, we have generally avoided operations before payment date, which is the same as issue date. Authorized for public release by the FOMC Secretariat on 8/21/2020 Therefore, I recommend that the guidelines be amended to permit the roll-over of maturing holdings and to authorize the purchase of new securities on the issue date. If these amendments are made, we could proceed to specific discussions with the various issuers of agency issues, in order to work out the details of roll-over procedures. The following changes in the present guidelines which were approved by the Committee on August 24, 1971, and revised on February 15, 1972, April 17, 1972, and April 17, 1973, would accomplish the desired purpose: Delete guideline 4 which reads, "System holdings of maturing agency issues will be allowed to run off at maturity." The authority to roll over maturing agency securities is already contained in paragraph 1(a) of the authorization for domestic open market operations which reads in part, "to exchange maturing U.S. Government and Federal agency securities with the Treasury or the indi- vidual agencies or to allow them to mature without replacement." Delete guideline 7 which reads, "No new issues will be purchased in the secondary market until at least two weeks after the issue date." The authority to purchase agency securities would then be derived from paragraph 1(a) of the authorization for domestic open market operations which reads in part, "To buy or sell...securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States ...., on a cash, regular, or deferred delivery basis." While this authorization would technically permit the Desk to purchase agency issues early in the "when-issued" period when the securities are still undergoing their initial distribution, the Desk generally would not plan to buy the new issues at such times--just as it refrains from purchasing new Treasury securities during their initial distribution phase. Authorized for public release by the FOMC Secretariat on 8/21/2020 -4- I have attached a report which reviews the System's outright activity in the agency market since operations were commenced during September 1971. Attachment Authorized for public release by the FOMC Secretariat on 8/21/2020 FEDERAL RESERVE BANK OF NEW YORK MISC. SB OFFICE CORRESPONDENCE June 28, 1974 DATE FROM Subect: Holmes Mr. To Market Committee meeting on August 24, guidelines for purchasing $61 outright Briefly, authority was operations folio The the form of 1971 This decision conducted 1971, securities by report provides the accompanying through June tables, using the maturities of and bonds. for purchase although it must be in rough proportion the the debt of to the amount of since as frequently System has distribution which total volume is proportionately heavier in also acquired The a maturity the that relatively active in the new technique about in Treasury notes System has 1974. the accompanying data reveal a modest portfolio with agency has This On September 23, granted, the Desk has been the agency market, eligible and sales of in agency operations million in the market. from September approximates 1971. Open nature and extent of outright System operations regarding the acquired Federal under which Desk operations would be information, mainly in in agencies the System Account. the were made public on September 16, the Desk commenced 1971, outright purchases authorized Federal agency securities and the 1974 June Edward J. Ozog At its as Review of Outright System the Agency Activity in Market: September 1971 - of securities noted that the port- longer-term securities. each individual agency eligible securities each outstanding. The Desk's positive effect on activity in agency the functioning of securities has had a the market, primarily Authorized for public release by the FOMC Secretariat on 8/21/2020 through has not significantly System operations havior nor noticeably changed the as cause of a major this Treasuries marketability in of securities a concurrent rise The of Treasury be operate in however, by the requirement agency securities have modifying reserve in the authority to use of It is issue recommended System that as agency a means roll- implementing monetary consider authorizing of agency transactions and the Desk to as the Account Management's of to roll-over maturing holdings consider authorizing The ability to purchase new securities the Committee circumstances warrant such also and date would enhance agency operations impaired, the Desk only purchase issues which have been outstanding for two weeks. early as the availability flexibility the agency market is that over maturing agency holdings improved maturity sector. this usefulness of The on an outright basis the com- the agency market and has provided the Account Management with valuable to reserve needs. and the perspective of operations, the introduction of a new method for responding identified attributed to financing in cumbersome from in marked narrowing of sector of this Although System dealings in proven somewhat agencies on longer-term agency issues for example, can, the cannot be readily development. the spread between yields parable of the market. favor of in System operations recent years but influenced market be- structure Yield relationships have changed of the impact but intermittent demand, the addition of the securities when that to purchase policy. the any Committee outstanding securities which meet other eligibility requirements. Authorized for public release by the FOMC Secretariat on 8/21/2020 Volume and Frequency of System Operations Tables 1 through 3 indicate that the System Account Management has utilized agency operations as an important means of providing for the longer-term reserve needs of the banking system. During the 34 months covered by this report, $3.7 billion or 42 percent of the total purchases of $8.8 billion of securities other than Treasury bills were agency securities. At the end of June, 1974, the System's outright holdings of agency securities totaled $2.9 bonds billion, outright holdings of Treasury notes and totaled $42.5 billion, while Treasury bills totaled $37.3 bil- lion. The Desk purchased agency securities in the market on 22 occasions, the same as the number of market purchases of Treasury notes and bonds. The Desk purchased agency securities directly from customer accounts on 6 additional occasions and purchased Treasury notes and bonds from these accounts on 12 occasions. The size of individual purchase operations in the agency or Treasury note and bond market have been comparable. While agency operations have tended to be slightly smaller than Treasury operations, the ability of the Desk to supply a substantial volume of reserves through outright agency operations has been proven. The Account Management usually alternates purchases of securities other than Treasury bills between the agency market and the Treasury market, although this practice is at times suspended when availability makes it desirable for the Desk to temporarily concentrate operations in a particular market. During the Authorized for public release by the FOMC Secretariat on 8/21/2020 September 1971 - April 1972 interval, the Desk purchased both agencies and Treasury notes and bonds frequently in order to expand reserve availability. From then until the late summer of 1973 the Desk became a less active participant in both markets as the Account Management was a sparing provider of reserves. Both agencies and Treasury notes and bonds were purchased frequently to help expand reserve availability after the summer of 1973 but sales of coupon-bearing securities by customer accounts were a major factor in satisfying the System's need to acquire longer-term securities. Since October 1973 agency operations were concluded in the market on seven occasions but, given the sizable availability to the Desk of Treasury notes and bonds from foreign official accounts, the Desk purchased Treasury coupon-bearing securities in the market on only three occasions. On two occasions during 1972 the Desk sold moderate amounts of near-maturity agency issues in order to contribute to the task of absorbing sizable amounts of reserves. In part the operations were an experiment in the feasibility of selling couponbearing securities, a technique which the Desk has not used in the Treasury market in over 10 years. Both operations proved success- ful but, although sales of near-maturity agencies can be useful in arranging reserve absorptions for times when they fit better with System reserve objectives, sales of coupon-bearing securities are technically not too satisfactory a means of absorbing a large volume of reserves. It should be noted that because of redemptions Authorized for public release by the FOMC Secretariat on 8/21/2020 and sales were up The (which would have only $2.9 soon become redemptions) billion compared with purchases Composition of effects of particular specified Federal holdings of $3.7 billion. the System Portfolio In order to avoid System dominance of undesirable our on market behavior agencies or sectors of or the market, for operations The guidelines the agency issues, as last agency market, the appearance of certain guidelines for the in the support FOMC has the market. conduct of System operations in revised on April 17, 1973, are as follows: 1. System open market operations in Federal agency issues are an integral part of total System open market operations designed to influence bank reserves, money market conditions, and monetary aggregates. 2. System open market operations in Federal agency issues are not designed to support individual sectors of the market or to channel funds into issues of particular agencies. 3. System holdings of agency issues shall be modest relative to holdings of U.S. Government securities, and the amount and timing of System transactions in agency issues shall be determined with due regard for the desirability of avoiding undue market effects. 4. System holdings of maturing agency issues will be allowed to run off at maturity. 5. Purchases will be limited to fully taxable issues for which there is an active secondary market. Purchases will also be limited to issues outstanding in amounts of $300 million or over in cases where the obligations have a maturity of five years or less at the time of issuance, and to issues outstanding in amounts of $200 million or over in cases where the securities have a maturity of more than five years at the time of issuance. Authorized for public release by the FOMC Secretariat on 8/21/2020 at any one of any one issue System holdings 6. time will not exceed 20 percent of the amount of the Aggregate holdings issue outstanding. of the issues of any one agency will not exceed 10 percent of agency. that 7. No new issues will be purchased in the secondary market until at least two weeks after the issue date. 8. All outright purchases, sales and holdings of agency issues will be for the System Open Market Account. The Account of best price and in relation offerings to the Trading Desk. objective type of in mind, market however, that The are a prime determinant System has fairly well balanced in terms sented. composition of availability of con- the System portfolio in the market. the on While the Account Management forces security purchased been such, to the composition of operations with the ducts agency securities Management purchases the basis is issues of amount of outstanding the Market of an the forces have acquired a portfolio that of maturity the portfolio is and agencies repre- described in Tables 4 through 6. held by the The maturities securities due securities eligible less than in 5 years for purchase five years, matures within or more. Also, ble agencies mature within a year issues ship in proportion of 1 to While at the only 61 percent five years. to the of 74 percent of end of the the June 1974 System's agency mature in portfolio even though 24 percent of eligi- the System has not acquired amount eligible 5 year maturities is towards System are weighted for purchase. similarly moderate. these Owner- Authorized for public release by the FOMC Secretariat on 8/21/2020 One reason longer-term issues meet relatively to is that agency purchases long-term reserve is roll over maturities the value needs. The Desk's reference to sector of the market this prevailing market sector offer Treasury diminishes often cause undesirable reserve absorptions The relatively heavier issues. conditions. is well developed little the which can also be explained of longer-term maturities to inability in the portfolio since the Desk must offset through operations. holdings toward were being used a factor which particularly of short-term securities redemptions System's purchases for slanting the through The shorter-term and active and yields in incentive over comparable maturities of Longer-term agency issues, on the other hand, have offered a distinct yield advantage over similar Treasury issues. By leaning has been able was toward longer to broaden the issues, demand for relatively more useful in fostering the Account Management agency issues where this development of the agency market. The System's portfolio is fairly representative of the amount of securities each individual agency has outstanding after consideration for given to purchase as well standing cent of nine is months. agencies as market securities of the the maturities factors. the COOP securities eligible and of securities eligible For example, FICB, which represent for purchase, are mainly Given the Account Management's policy of for longer-term reserve effects with which purchases of these the out- and given the issues must be redeemed, 12.7 perdue within purchasing frequency only about Authorized for public release by the FOMC Secretariat on 8/21/2020 one percent of the System's portfolio is in securities of agencies. these Over 50 percent of the eligible securities are obliga- tions of the FNMA and FHLB but 69 percent of the System's portfolio is composed of these obligations. In part, this represents a substitution of these readily available issues for the COOP and FICB issues which have not been frequently purchased. Holdings of FNMA securities are proportionately large while holdings of FHLB securities are proportionately small. Here, it appears that the large volume of FNMA securities, about 30 percent of total eligible securities, has increased their market availability and probably their yield in relation to FHLB securities. Moreover, a greater proportion of FHLB securities are shorter-term securities. Holdings of GNMA participation certificates are proportionately relatively low since this type of security has not been issued since 1968. The market supply of the GNMA participation certificates is usually small and market yields are not attractive. Holdings of most of the agencies less active in the market, such as the Export-Import Bank, Postal Service and Washington Metropolitan Transit Authority are proportionately sizable not as developed as since the market for these issues is the market for the older agencies and consequently yield values have usually been attractive. Holdings of Farmers Home Administration securities are consistent with outstandings. While certain uncommon technical characteristics of these issues have made the Desk reluctant to handle large transactions in these issues, the offsetting high yields available have prompted the Desk to purchase an amount in proportion to the amount eligible. Authorized for public release by the FOMC Secretariat on 8/21/2020 Operating Experience System purchase operations conducted in much obligations. all dealers issue and limited buying Using the as go-around technique, a large number of individual before there has acquired but of issues to embarking on purchase operations execute are purchased. mainly by the the The difficulty large number of process the Desk attempts activity permits. circumstances Management prefers and operation with the dealers closing A The is In succeeding to limit is issues times case until the number proven required to case when Treasury issues in agency operations the market in this to enable operations have the avoided is caused eligible for purchase. requires much the Desk later as other trading is forced by operating than the Account the Desk may not shortly time, after conclude an the market's time of 3:30 p.m. recent go-around, representative of an 2:15 in order to enter the market as early to approach Desk short maturities have of purchasing agencies However, at contacts offerings by the considerable more time operation than an agency and Treasury go-arounds were two been no attempt cumbersome complete the Desk are experience in handling in many operations and of full-scale operations. from the go-around. to issues gain some been excluded normal the first the maturity range the Bank's accounting staff Because outright purchases Purchases during only part of the issues the agency market virtually simultaneously and requests price. to the same way in p.m. and were agency conducted on March 21, operation. told the Desk was 1974, is Dealers were contacted at soliciting offerings of all Authorized for public release by the FOMC Secretariat on 8/21/2020 eligible agency issues due in 1977 or longer. restricted to those issues mainly because The about request was 180 individual issues were eligible for purchase that day and it was not considered issues range feasible to handle potential offerings submitted by all the dealers. specified of that many Nevertheless, the maturity included 97 issues. By 3:00 p.m. all dealers had submitted offerings which totaled slightly more than $1 billion. of the Open Market Function began the best relative yields. of virtually all issue were eligible submitted over minutes were consumed by This Immediately, the officers to choose issues which provided task was difficult since issues were offerings received and prices a wide range. In this for case about each 45 the process of determining and comparing yields, and deciding which offerings should be purchased within available leeway margins. The $170 million of securities purchased that afternoon was comprised of 78 individual items. An operation Desk asks dealers takes up for offerings to two and hours the time from the time that dealers the are notified whether their offerings are accepted or rejected. time does entering tickets. issues not include the the market nor preparation for and amounts eligible of go-around forms providing and yields. The deliveries. processing trade accurate determination of all for purchase essential as well as current and accounting which was inception of agency operation has been the organization information on requires preparation of all accounting procedures The manual operation before the processing of a large number of Preparation requires completion of an This tickets, prices the the receiving of necessary at the converted to computer but Authorized for public release by the FOMC Secretariat on 8/21/2020 the accounting for for dealings to borrow. Of the 78 items purchased due the taken as substitutions. temporary difficult 22 items were on March 21, next day and other securities were not delivered when were agency securities are problem since many been a constant delivery have Delays in in Treasury securities. complex than more agency transactions remains cleared up by April 10, but these substitutions Most of the of the last securities was not delivered until May 8. in agency Despite the burdensome aspects of dealing the Desk's securities, experience has been generally good and the ability to affect reserves through this medium outweighs any technical disadvantages of operations. capable of providing the depth needed for consistently offered Dealers have on request of securities and greater effect levels. individual operations inhibited operation, in dealings likely Moreover, while the the market for Desk may thin markets to move sharply in these constraints in comparable varies with market the Desk has not experienced any from operating when markets are than While for Treasury coupon securities. the impact of from operations. the whole System operations on market price levels the market time, volume the Desk a substantial operations in at the System operations. at prices which are on consistent with prevailing market have no The market has proved are no greater Treasury disruptive effects at times develop response conditions to than feel or when the a System those experienced coupon securities. Authorized for public release by the FOMC Secretariat on 8/21/2020 Market Performance The performance of the agency market at the time of the FOMC decision to authorize outright purchases by the System Account had clearly reached a satisfactory state of development which warranted Federal Reserve participation. Trading was active, dealers maintained sizable positions and in general the market exhibited the depth, breadth and resiliency expected from a mature and efficient market. tion the market has continued satisfactory performance. to this Over the years of System participato display the characteristics of The extent of the System's contribution performance is difficult to identify, however. Surely the Desk's purchase of nearly $3 billion of agency securities contributed to the ability of the agencies to sell approximately of securities during 1972 and 1973. $31 billion Furthermore, the market's cognizance of a major source of potential demand, as well as the enhanced stature of the market conferred by System participation must be considered an asset. Among the indicators of market performance which might be expected to reflect of yields on agencies System participation is the relationship to yields on comparable Treasury securities. Normally agency securities yield more than Treasury securities but the yield spread between similar maturities in each market fluctuates considerably. Although it has been said that the credit status of each security accounts in spreads this factor appears for some of the disparity to be minor especially when one considers that many agency securities are obligations of the Authorized for public release by the FOMC Secretariat on 8/21/2020 United States Government and the remainder are essentially backed by the integrity of the Federal Government which sponsors their activity. Two important factors affecting yield spreads marketability and relative supply. securities is issues. are The market for Treasury obviously larger and broader than that for agency Consequently, the value to the investor of engaging in a market which may be more reliable should be reflected in the price of Treasury obligations. Since investors usually prefer Treasuries over agencies if yields are equal, it requires some yield advantage to entice investors from the former to the latter. When agencies are in abundant supply relative to the availability of Treasuries, the yield spread will increase and, when agencies are scarce relative to Treasuries, the yield spread will narrow. Table 7 uses data derived from spreads published by Salomon Brothers as an illustration of the yield relationships which have existed in recent years. The data clearly indicate that recent yield spreads are narrower than those that existed before System participation. However, the relatively large spreads which existed before the commencement of System participation were mainly the result of a sizable expansion of agency financing beginning in 1966. The market eventually began to adjust to the increased demands of the agencies, as investors learned that agency securities marketable as in general are practically as Treasuries and the agency market often performs as well or better. The longer-term sector of the market in particular Authorized for public release by the FOMC Secretariat on 8/21/2020 has expanded considerably in increased marketability has sell these securities. terms overall activity and this diminished the yield required to Moreover, somewhat more homogeneous of in agency securities have recent years and issues with unusual characteristics limiting their value provided System probably has helped reduce but it given by the is nearly the impossible to general improvement are quantify in become not common. The demand yield spreads the impact the marketability of this of factor agency securities. Operating Guidelines The FOMC activity in the guidelines which have agency market from an operating standpoint. approximately the 44 percent exceed 10 agency. percent of have been generally At of the stipulation that holdings June 1974, $3.7 billion of agencies total of any one issue its securities approached Holdings the under this case of 10 percent and only securities is the stipulation that i.e., least rule. issues a few of outstanding for not at the end of an additional Moreover, the System than 20 percent of any other holdings approach two relatively small agencies restrained the the securities issued by that outstanding limit on holdings of A limitation which has eligible under agency's limit of holding no more in only one this limit. issues, one satisfactory the System owns securities the System could purchase at reached however, present, the outstanding securities Based on eligible has directed the Desk's a single issuer. Desk's activity, System only purchase seasoned at least two weeks. This Authorized for public release by the FOMC Secretariat on 8/21/2020 requirement is embodied in guideline 4 which states, holdings of maturing agency at maturity", be and purchased in after guideline 7 which states, 4 was included mainly no established procedures maturing agency issues. However, this to domestic open market operations was apply only established maturing agency debt, as early that in order the to apparently with for as March similar channeled 7 was Committee deliberated authorization the as avoid same for time the for exchange of a view to the possibility to allow for agencies. counsel expressed the arrangements whereby new System portfolio included the basis for policy for it accepted staff arguments restricted originally on an exchange basis. Guideline agencies rolling-over provide 1971, Committee into the reasons undertaken with the the law would permit special issues may be new technical amended at rolling-over maturing issues would be far for in time discussion of practical procedures view off two weeks guideline was temporarily and guidelines were Indeed, run new issues will at least are available intended or "No to date." Guideline that allowed the secondary market until the issue since issues will be "System to "seasoned" issues possible--the the appearance issue, and ward fiscal agents, pricing of or that operations must to new issues; of direct off possible pressures and selling groups When the outright System operations in order the fact reasons. avoid in in be affecting--inso- turn, this would System support of any from borrowing agencies, or syndicates. Authorized for public release by the FOMC Secretariat on 8/21/2020 the However, guidelines 4 and warranted in 7 has without entering of reserves, but the pressures since the such as the Banks Credit Banks. the as commenced, the Desk is not around the old issues in dealer by debt and tions. This power would be to the by not purchasing trading has relatively more ample at times risk limited supply the more permitting the Desk purchase new valuable of the Modification rolling-over maturing debt would not System dominance of the market to roll- securities flexibility consistent with Treasury securities. in potential 7, of issue but may the FOMC issue date would add to permit Federal Intermediate inventories. the to acquire date chasing after Authorization by over maturing agency short-term borrowers guideline only denied refrained Consequently, after secondary market several weeks for as regards new the attrition of time. of the replaced by be generally short obligations for Cooperatives and the market contribute to market times a relatively frequent impact on an undesirable short maturities because light in distorting only meant not the Desk has In addition, Moreover, available at securities maturing investments must System's new issues supply times at redemptions may that must be faced within is replace market has in the portfolio with the portfolio to the Desk the secondary from purchasing very the avoiding System domination of attrition investor demand. than is limitation been a greater the pursuit of The inability market. by imposed on Desk activity restraint to as early System opera- Desk's of the authority guidelines imply an increase since the System would Authorized for public release by the FOMC Secretariat on 8/21/2020 be only replacing decision to its on of new securities not reducing its the bank demands to and on The Desk, The of be not materially automatic for example, for replacing conjunction with each the mechanical hurdles do not seem to The the amount procedures be devised in to achieving too difficult. the guidelines to acquire new securities would also debt. a financing if an agency is on the market. Modifications Desk an agency. to participate in fiscal agent but this ability reserve outlook offered by maturing debt would have agency's of outstanding agency roll-over maturing securities would not be but would depend may elect share in change in order the market on the to permit the issue functioning of date the market. The primary distribution of new agency securities is usually completed in and the date and the period between the therefore an agency the Desk would not provide undue 4 and effects lines provide for the it must be are noted desired policy flexibility. operations restraints designed That to is, for designed to support that individual sectors of of particular agencies; to undesirable that money market operations are not the market or that reducing state reserves, and guide- remaining guide- restraints without influence bank and monetary aggregates; into issues that the lead other guidelines conditions, funds support imposed by 7 may be viewed as a step which could on the market, operating payment financing. Although deletion of the lines offering date the to channel the amount and Authorized for public release by the FOMC Secretariat on 8/21/2020 18 timing of transactions shall be determined with due regard for the desirability of avoiding undue market effects. Consequently, the guidelines would continue to restrict operations to objectives desired by the Committee. EJO:PDS/rf the Authorized for public release by the FOMC Secretariat on 8/21/2020 Table I Dollar Volume of Outright System Transactions in Treasury Notes and Bonds and Federal Agency Securities (in millions of dollars) Treasury Notes & Bonds Purchases Purchases 1971 (4 months) 1,142 485 1972 1,582 1,197 1973 1,417 1/ 865 3/ 953 2/ 1974 (6 months) TOTAL 1/ 2/ 3/ 4/ 5/ 6/ 5,094 Federal Agency Securities Sales Redemptions Net Increase 485 225 827 -0- 239 626 1,189 4/ -0- 268 921 3,736 145 7326/ Includes $816 million purchased from customer accounts. Includes $381 million purchased from customer accounts. Includes $167 million purchased from customer accounts. Includes $148 million purchased from customer accounts. Represents sales in the market of $54 million and $91 million of issues one year on February 22, 1972 and August 24, 1972, respectively. Redemptions represent 20 percent of total purchases. June 28, 1974 2,859 due within Authorized for public release by the FOMC Secretariat on 8/21/2020 Table II Frequency and Volume of System Purchases (in millions of dollars) Occasions 1971 (4 months) 5 in Market Federal Agency Securities Total Average Smallest Purchases Purchase Purchase $ Largest Purchase 485 $ 97 $ 35 $161 1972 8 1,197 150 83 176 1973 4 698 175 139 229 1974 (6 months) 5 1,040 208 167 309 TOTALS 22 $3,420 Occasions Treasury Notes and Bonds Total Average Smallest Purchases Purchase Purchase Largest Purchase 6 $1,142 $190 $104 $263 1972 10 1,582 158 76 217 1973 3 601 200 196 207 3 573 191 176 207 22 $3,898 1971 1974 (4 months) (6 months) TOTALS June 28, 1974 Authorized for public release by the FOMC Secretariat on 8/21/2020 Table III Dispersion of System Purchase Operations LEGEND: T - Purchase T - Purchase A - Purchase A - Purchase Treasury notes and bonds in the market. Treasury notes and bonds from customer account. agency securities in the market. agency securities from customer account. 1971* 1972 January T TA February T March April 1974** 1973 TTA T A TTA T A T TA T AA T A T A A May June T A T A TT A July August September TT A October A A November TTTAA December T TTTAA A TTTAA * - Covers only 4 months. ** - Covers only 6 months. June 28, 1974 Authorized for public release by the FOMC Secretariat on 8/21/2020 Table IV Maturity Distribution of Outright System Holdings of Federal Agency Securities (in millions of dollars) Maturity 12/31/71 12/31/72 12/31/73 6/30/74 % 0 - 1 year 210 239 415 459 16 1 - 5 years 181 612 787 1,274 45 5 - 10 years 61 269 497 754 26 Over 10 years 33 191 239 371 13 485 1,311 1,938 2,858 100 TOTAL Agency Securities Eligible for Purchase by System Account Eligible Securities 6/30/74 0 - 1 year 15,861 24 1 - 5 years 32,911 50 5 - 10 years 10,502 16 6,287 10 65,561 100 Over 10 years TOTAL June 28, 1974 Authorized for public release by the FOMC Secretariat on 8/21/2020 Table V Outright System Holdings of Federal Agency Securities (in millions of dollars) Percent of 12/31/71 HOLDINGS 12/31/72 12/31/73 COOP 23.8 -0- FICB 121.9 22.2 FLB 35.0 FHLB -0- 6/30/74 Percent Amount of 6/30/74 Eligible for Total Purchase 6/30/74 Eligible Holdings System Holdings as Percent of Eligible 6/30/74 13.2 0.5 1,711.7 2.6 0.8 70.9 66.5 2.3 6,626.9 10.1 1.0 141.1 245.7 363.1 12.7 10,054.6 15.3 3.6 75.8 155.6 279.5 524.7 18.3 14,750.0 22.5 3.6 FNMA 201.3 784.9 1,010.8 1,451.1 50.8 19,950.0 30.4 7.3 GNMA 18.5 47.7 41.5 58.6 2.1 3,490.0 5.3 1.7 EXIM 8.7 105.6 108.2 116.6 4.1 2,750.0 4.2 4.2 FHA -0- 36.0 134.5 172.9 6.0 5,108.0 7.8 3.4 P.S. -0- 14.3 24.7 24.8 0.9 250.0 0.4 9.9 WMTA -0- 4.0 20.7 63.0 2.2 670.0 1.0 9.4 GSA -0- 1.0 3.7 0.1 200.0 0.4 1.9 1,937.5 2,858.1 100.0 65,561.2 100.0 4.4 TOTAL 485.0 -01,311.4 June 28, 1974 Authorized for public release by the FOMC Secretariat on 8/21/2020 Table VI System Purchases of Securities of Each Agency (in millions of dollars) 1971 (4 months) 1972 1973 1974 (6 months) COOP 23.8 16.8 -0- 13.2 FICB 121.9 88.2 60.9 56.6 FLB 35.0 129.2 114.6 176.1 FHLB 75.8 118.7 173.3 278.4 FNMA 201.3 651.2 369.7 555.4 GNMA 18.5 41.3 6.9 17.1 EXIM 8.7 96.9 13.1 8.4 FHA -0- 36.0 98.4 38.4 P.S. -0- 14.3 10.5 -0- WMTA -0- 4.0 16.8 42.3 GSA -0- 1.0 2.7 865.2 1,188.6 TOTAL 485.0 -01,196.6 June 28, 1974 Authorized for public release by the FOMC Secretariat on 8/21/2020 Table VII YIELD SPREADS Agencies less Treasuries (in basis points) 1 5 10 20 1 5 10 20 year year year year year year year year 1973 Average Spread 1972 1971 1970 -13 28 46 42 13 23 53 128 33 34 70 158 1973 Maximum Spread 1972 1971 1970 29 43 77 145 67 56 96 173 32 57 76 92 1973 1 5 10 20 year year year year SOURCE: 13 31 80 151 38 54 118 187 Minimum Spread 1972 1971 1970 1 9 36 107 -014 49 144 Salomon Brothers market reviews. June 28, 1974
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