Several of the world’s major central banks are spelling out their latest new measures aimed at pumping up market liquidity.

The banks, led by the U.S. Federal Reserve Board, recently announced coordinated actions to expand the provision of U.S. dollar liquidity. Today, they announced schedules for term and forward auctions of U.S. dollar liquidity conducted during the fourth quarter of this year.

These schedules include dates of any 28-day and 84-day term auctions and two preliminary dates for any forward auctions of U.S. dollar liquidity over the year-end. The Fed notes that the scheduling of the forward auctions is still tentative and may be adjusted in response to financial market conditions.

The Fed will conduct an auction of 28-day credit through its Term Auction Facility in October and another in November, and a third auction of 28-day credit is now scheduled for December. It will also conduct two auctions of three-month credit through the TAF in October and November. Two more auctions of three-month funding are now scheduled for December. The two forward TAF auctions, designed to reassure market participants that term funding will be available over year-end, are now tentatively scheduled for November 10 and November 24.

The Bank of Canada welcomes these further actions by other central banks, but it judges that it is not necessary for it to participate in these auctions at this time. “The Bank of Canada continues to closely monitor global market developments and remains committed to providing liquidity as required to support the stability of the Canadian financial system and the functioning of financial markets,” the bank said in a release.

In addition, the Bank of Canada announced that it will sell $2.65 billion of its holdings of treasury bills to partially offset the temporary increase in assets associated with the term purchase and resale transactions announced yesterday.

Finally, the Fed also announced the creation of the Commercial Paper Funding Facility to help provide liquidity to term funding markets. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers.

The Fed will provide financing to the SPV under the CPFF and will be secured by all of the assets of the SPV. “The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy and will make a special deposit at the Federal Reserve Bank of New York in support of this facility,” it says.

“The commercial paper market has been under considerable strain in recent weeks as money market mutual funds and other investors, themselves often facing liquidity pressures, have become increasingly reluctant to purchase commercial paper, especially at longer-dated maturities. As a result, the volume of outstanding commercial paper has shrunk, interest rates on longer-term commercial paper have increased significantly, and an increasingly high percentage of outstanding paper must now be refinanced each day,” the Fed reports.

“By eliminating much of the risk that eligible issuers will not be able to repay investors by rolling over their maturing commercial paper obligations, this facility should encourage investors to once again engage in term lending in the commercial paper market,” it adds. “Added investor demand should lower commercial paper rates from their current elevated levels and foster issuance of longer-term commercial paper. An improved commercial paper market will enhance the ability of financial intermediaries to accommodate the credit needs of businesses and households.”

IE