The redemption, a move to drain liquidity from the banking system, will take place via the Federal Reserve's System Open Market Account, or SOMA.
NEW YORK (Reuters) - The U.S. Federal Reserve said on Thursday it will redeem the full amount of maturing Treasury bill holdings of $12.48 billion on January 3, 2008.
The redemption, a move to drain liquidity from the banking system, will take place via the Federal Reserve's System Open Market Account, or SOMA.
"The Federal Reserve Open Market Trading Desk will continue to evaluate the need for the use of other tools, including further Treasury bill redemptions, reverse repurchase agreements and Treasury bill sales," the Fed said in a statement on the New York Fed's Web site.
In the case of the Fed, its announcement of the SOMA bill redemption essentially neutralizes the stimulative effect on bank reserves once banks tap into the Term Auction Facility (TAF) and foreign exchange swap lines unveiled by the Fed and four other central banks earlier this month.
!ADVERTISEMENT!The cumulative effect of the bill redemptions is aimed at maintaining the federal funds rate on the open market at or near the Fed's recommended lending rate between banks, which is currently 4.25 percent.
Federal funds last traded on the open market at 4.313 percent.
For all of December, the Fed has redeemed about $40 billion of maturing Treasury bill holdings, which is roughly equal to the amount lent out from TAF auctions during the month.
(Reporting by Chris Reese; editing by Gary Crosse)
