The time: 1:40 PM on a Wednesday in mid-November. The place: the Federal Reserve Bank of New York's trading room on the eighth floor. The manager of the Open Market Account reaffirms with trading officers an earlier decision to buy about $3 billion of Treasury bills. The banking system clearly needs additional reserves to meet increased public demands for currency and deposits as holiday shopping crests near the end of the quarter. After a brief discussion, the manager authorizes the operation.
The officer-in-charge at the Trading Desk turns to the FED's securities traders, who sit before phone consoles linked to dealers in U.S. government securities. "We're asking for offerings of all bills for regular delivery," she says, which means delivery and payment will take place the next day, on Thursday. Each trader has vertical strips on which offerings will be recorded from dealers. Ed, one of the group, presses a button on his phone, sounding a buzzer on the console of a government securities dealer. "Jane," Ed says, "we want offerings of bills for regular delivery."
Jane replies, "I'll be right back." She turns and yells, "The FED is in, asking for all bills for delivery tomorrow." Information screens around the world flash the news, and salespeople begin ringing customers to see if they want to offer any bills. Meanwhile, Jane checks with the trading manager of her firm to see how aggressively she should price the firm's own securities.
Twenty minutes later Jane rings back. "Ed, I can offer $15 million in bills maturing February 9 at 5.20 percent, $40 million March 13 bills at 5.42, $25 million March 20s at 5.44 and another 25 at 5.46. I'll sell $75 million July 13s at 6.12 and another 100 at 6.09. I can offer $20 million September 21s at 6.25 and 50 October 16s at 6.28. All for delivery tomorrow."
Ed reads back each offering to double check, then says, "Can I have those firm?" "Sure." Each trader quickly records offerings on the preprinted strips. The officer-in-charge arrays individual dealer strips on an inclined board atop a stand-up counter. A quick tally shows that dealers have offered $13.3 billion of bills for regular delivery---that is, on Thursday.
The officer and a colleague compare interest rates across the different maturities, targeting those with high yields (and thus, low prices) in relation to adjoining issues. She circles any special bargains with a red pencil, and other offers with yields on or above a yield curve she draws mentally through heavily offered issues. Her associate keeps a running tab of the amounts being bought. When the desired volume has been circled and cross-checked, individual strips are returned to the traders, who quickly ring up dealers. Ed says, "Jane, we'll take the $25 million March 20s at 5.44, the 75 July 13s at 10.12, and the 50 October 16s at 6.28 for regular delivery. A total of $150 million. No thanks on the rest."
Less than an hour after launching the operation, all follow-up calls have been completed. The Trading Desk has bought $3,009 million of Treasury bills. Only the paperwork remains. The traders write up tickets authorizing the accounting section to instruct the Reserve Bank's Government Bond Department to receive and pay for the bills the FED has purchased.
Original source: Paul Meek, Open Market Operations (New York: Federal Reserve Bank of New York, 1985). Condensed and updated by the authors. Reprinted (after editing) by permission of the Federal Reserve Bank of New York.