This is good news. The Fed is auctioning less (yes, I know its balance sheet is somewhat lopsided at the moment) and accepting less kinds of security as collateral. The Fed has a pretty good idea of the needs of depository institutions and investment banks at the moment, and we think that this, coupled with the action in the Term Auction Rate facility, is a good sign.
"Boston, April 2. Details of the second-ever TSLF auction are quite different from the first, most notably in the sharp drop in the offering amount. The Fed will auction just $25 bln in Schedule 1 collateral, down from $75 bln in Schedule 2 collateral at last week's auction. The minimum fee rate will be 0.1000%, compared to a minimum fee rate of 0.2500% last week. The Treasury general collateral basket includes 22 issues, including two inflation index issues. That's down from 25 issues (four TIIS) last week."