Fed auctions $24.12 billion in Treasuries to ease credit crunch

WASHINGTON -- The Federal Reserve has auctioned $24.12 billion in super-safe Treasury securities to big investment firms, part of an ongoing effort to ease credit problems.

The auction -- the sixth of its kind -- was held Thursday and fetched bids slightly less than the $25 billion being made available. That small reduction could suggest that demand for Treasuries may be moderating a bit. That might be viewed as a sign of some improvement in credit conditions.

In exchange for the 28-day loan of Treasury securities, bidding firms can put up more risky investments, including certain shunned mortgage-backed securities, as collateral. Bidders' identities are not made public.

The program began on March 27.

In Thursday's auction, investment firms paid an interest rate of 0.1000 percent for a slice of the securities.

The auction program is intended to help financial institutions and the troubled mortgage market. The goal is to make investment houses more inclined to lend to each other. It also is aimed at providing relief to the distressed market for mortgage-linked securities. Questions about their value and dumping of these securities had driven up mortgage rates, aggravating the housing slump.

The lending program is one of several unconventional steps the Fed has taken to deal with a credit crisis.

Credit troubles worsened earlier this year, driving investment firm Bear Stearns to the brink of bankruptcy and spurring fears other big Wall Street companies could be in jeopardy.

Wanting to avert a broader panic that could endanger the entire U.S. financial system, the Fed agreed last month to temporarily let investment firms obtain emergency loans directly from the central bank -- a privilege previously limited to commercial banks. The decision marked the broadest extension of the Fed's lending authority since the 1930s.

To help bolster the economy, which has been hard hit by housing, credit and financial woes, the Fed cut a key interest rate on Wednesday that influences many rates charged to consumers and businesses . At the same time, it signaled that its rate-cutting campaign -- one of the most aggressive in decades -- may be coming to an end for now.

Also Wednesday, the Fed lowered its emergency lending rate to commercial banks and investment houses by one-quarter percentage point to 2.25 percent.