Fed Creates New Term Securities Lending Facility

The big market moving news on Tuesday was the Fed’s announcement of a new Term Securities Lending Facility [TSLF] (Bernanke just loves these acronyms doesn’t he?) in which the Fed will lend treasuries and accept agency and non-agency AAA/Aaa private label mortgage backed securities as collateral. It will lend up to $200 billion in treasuries for a 28-day period, and the lending rate will be determined by auction (FOMC Announcement).

This directly addresses the current crisis in the mortgage-backed securities market, allowing holders of these securities to exchange them for treasuries in order to bolster their balance sheets for a 28 day-period, and hopefully ride out the current crisis.

Yesterday, the entire market was up on the announcement (Dow: +160, S&P:+16, Nasdaq: +30).