Morgan Stanley now expect the Fed to buy........>

FED: Morgan Stanley now expect the Fed to buy $300-330bln in Tsys (incl

bills/coupons) via permanent open market ops over 6 months, beginning Nov 1

(i.e. following Oct 30 FOMC decision) to "ensure a rebuild of reserves to the

longer-run level consistent with efficient and effective policy implementation".

- Temporary operations to continue but will not be a long-term solution, with

the Fed requiring a permanent increase in the size of its balance sheet.

- This could be done via a standing repo facility (which would need to expand

the counterparty list including banks), or via a "more permanent and simple

solution": buying securities outright to increase reserves to $1.45trn

(currently $1.32trn ex-TOMOs).

- Fed would begin with $50-55bln monthly buys over 6 months (comprising "buffer

building" bills purchases = $35-40bln, and "reserve maintenance operations

across the yield curve" = $15bln).

- Long-term growth rate seen at $60bln/yr (reflecting GDP + deposit growth).

- Possible though unlikely POMOs announced pre-October FOMC meeting.

- MS suggests buying Tsy 2s and 5s vs OIS.