The U.S. Federal Reserve unveiled a special lending operation for foreign central banks Tuesday as part of its latest effort to ease dollar funding costs in markets and economies around the world.
The Fed will allow foreign and international monetary authorities, who already hold accounts with the central bank, to exchange their U.S. Treasury securities for U.S. dollars. The Fed will then repurchase the cash, and give back the Treasury bonds, at a later date, in exchange for a brokered fee.
"This facility should help support the smooth functioning of the U.S. Treasury market by providing an alternative temporary source of U.S. dollars other than sales of securities in the open market," the Fed said in a statement. "It should also serve, along with the U.S. dollar liquidity swap lines the Federal Reserve has established with other central banks, to help ease strains in global U.S. dollar funding markets."
The move follows the Fed's establishment of $450 billion in U.S. dollar swap lines with nine central banks aimed at easing funding costs and boost liquidity in economies around the world on March 19.
The Fed will offered $60 billion in temporary swap lines to Australia, Brazil, Korea, Mexico, Singapore and Sweden, and $30 billion lines to Norway, Denmark and New Zealand. Similar credit lines are already in place with the Bank of England, the Bank of Japan, the Swiss National Bank and the ECB, the Fed noted.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies and traded at a three year high of 101.68 after the Fed swap lines were put in place, has eased to 99.603 as yields for benchmark 10-year notes backed up to around 0.685%.