22  See TMPG Best Practices for Treasury, Agency Debt, and Agency Mortgage-Backed Securities Markets. 23  Selling dollar rolls when concerns arise about the availability of certain TBA contracts is conceptually similar to making SOMA Treasury holdings available to the market through our securities lending program. One key difference is that the Desk offers settled Treasury holdings to the market through its securities lending program, whereas the Desk only rolls unsettled MBS holdings. 8  BIS central bankers’ speeches  Fuster, Andreas, Laurie Goodman, David Lucca, Laurel Madar, Linsey Molloy, and Paul Willen. 2012. “The Rising Gap Between Primary and Secondary Mortgage Rates.” Paper presented at the The Spread between Primary and Secondary Mortgage Rates: Recent Trends and Prospects conference, held at the Federal Reserve Bank of New York, December 3. Gagnon, Joseph, Matthew Raskin, Julie Remache, and Brian Sack. 2010. “Large-Scale Asset Purchases by the Federal Reserve: Did They Work?“ Federal Reserve Bank of New York Staff Reports, no. 441, March. Hancock, Diana, and Wayne Passmore. 2011. “Did the Federal Reserve’s MBS Purchase Program Lower Mortgage Rates?“ Journal of Monetary Economics, Vol. 58 (July): 498–514. Krishnamurthy, Arvind, and Annette Vissing-Jorgensen. 2011. “The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy.“ Brookings Papers on Economic Activity, no. 2: 215–65. Li, Canlin, and Min Wei. 2012. “Term Structure Modelling with Supply Factors and the Federal Reserve’s Large Scale Asset Purchase Programs.“ Finance and Economics Discussion Series 2012–37. Washington: Board of Governors of the Federal Reserve System, May. Rich, Robert and Joseph Tracy.

In the event of significant market demand for specific Treasury collateral held by the SOMA, investors can borrow these holdings through competitive securities lending operations. In the agency MBS market, the Desk is supportive of market functioning in two main ways. First, as I mentioned earlier, we adjust our purchase allocation as necessary to respond to concerns about relative scarcity in particular securities. Second, we use dollar roll transactions to facilitate the orderly settlement of our unsettled purchases.20 Selling dollar roll  18  Some analysts calculate the Desk’s Treasury purchases as a percentage of the Federal budget deficit. This approach overstates the Federal Reserve’s role in the market since the Treasury is obligated to issue additional securities to finance direct loan accounts, most notably the Department of Education’s Federal Direct Student Loan Program. In fiscal year 2013, the OMB estimates that the net effect of direct loan accounts on Treasury’s borrowing needs will be about $ billion. (See the Fiscal Year 2013 Mid-Session Review). 19  For more information about liquidity premiums in the Treasury market, see Fleming (2002) and Fleming (2000). 20  The Desk also has the ability to use coupon swap transactions to facilitate the settlement of its purchases, if needed. A coupon swap involves the sale of one agency MBS and the simultaneous purchase of another agency MBS with a different coupon. For example, in 2010 the Desk swapped unsettled Fannie Mae 5.5 percent coupon securities for other agency MBS that were more readily available for settlement.