The Treasury is selling $100 billion in short-term debt to enable the Federal Reserve to expand its balance sheet, a sign of the strains created by the biggest extension of central-bank credit to financial companies since the Great Depression.
The program started Wednesday with a $40 billion auction of 35-day bills, a day after the government agreed to take over American International Group Inc., the Treasury said in a statement in Washington. Another $60 billion will be sold today, it said.
The proceeds will “provide cash for use” by the Fed as it seeks to boost liquidity in credit markets struggling from $515 billion in write-downs and losses since the start of last year. The announcement illustrates the potential drain on the government’s finances in taking over AIG, Fannie Mae and Freddie Mac, and taking on $29 billion in Bear Stearns Cos. assets.
“It is becoming imperative for the Fed to take actions to enlarge its balance sheet,” said Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co. in New York.
The Treasury said it will sell $30 billion in 20-day bills today and another $30 billion in 76-day bills, both for settlement Sept. 19.
