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Federal Reserve Places 70% Per-Security Limit on Treasury Debt Holdings

December 28, 2010

The Federal Reserve announced it is placing a 70 percent per-security limit on treasury debt holdings as part of it's quantitative easing plan.

The New York Fed says it will give allowable purchase percentages for it's system open market account, or SOMA.

The previous limit was 30 percent. Once a security reached 30 percent, “additional purchases of the given security will generally be capped at 5 percent of the total outstanding issue size in each subsequent operation,” the statement said.

The Fed resumed buying U.S. government debt on Nov. 12 and has since purchased $144.249 billion in Treasuries.  It plans to make an additional $600 billion in purchases through June of next year.

“This gives some clarification on what the end game is for the Fed with regard to individual security purchases,” said Thomas Simons, a government-debt economist in New York at Jefferies Group Inc., one of the 18 primary dealer that trade with the central bank. “There are some issues that the Fed holds over 40 percent and people were wondering if they would remain cheap if there was no liquidity because the Fed owns them all. Now not only can the Fed not own 100 percent of an issue, it will also take them considerably longer to increase its holdings.”

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