Matched Sale-Purchase Agreement (MSPA)
In a matched sale-purchase agreement (MSPA), the Federal Reserve sells government securities such as U.S. Treasury bonds to an institutional dealer or the central bank of another country with the contractual agreement to purchase the security back within a short period of time, usually less than two weeks. In a matched sale-purchase agreement (MSPA), the Federal Reserve sells government securities such as U.S. Treasury bonds to an institutional dealer or the central bank of another country with the contractual agreement to purchase the security back within a short period of time, usually less than two weeks. The purpose of a matched sale-purchase agreement is to slightly prohibit market liquidity for the term of the matched sale-purchase agreement. Matched sale-purchase agreements contract the economy and are the opposite of repurchase agreements, which expand the financial supply by putting money reserves into the country's economy. Matched sale-purchase agreements contract the economy and are the opposite of repurchase agreements, which expand the financial supply by putting money reserves into the country's economy.
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What Is a Matched Sale-Purchase Agreement (MSPA)?
In a matched sale-purchase agreement (MSPA), the Federal Reserve sells government securities such as U.S. Treasury bonds to an institutional dealer or the central bank of another country with the contractual agreement to purchase the security back within a short period of time, usually less than two weeks. The security is bought back at the same price at which it was sold and decreases banking reserves during the term of the matched sale-purchase agreement.
This calculated agreement is also known as a "system MSP."
Understanding Matched Sale-Purchase Agreements (MSPAs)
Ultimately, matched sale-purchase agreements are a rarely-used method of temporarily decreasing reserves and securities holdings, done when country governments have limited options. The purpose of a matched sale-purchase agreement is to slightly prohibit market liquidity for the term of the matched sale-purchase agreement.
Since matched sale-purchase agreements occur over short periods of time, they are employed as short-term options for stabilizing a market. This financial arrangement is different than the standard open-market operations (such as selling Treasuries to investors), in that actions by the Federal Reserve make permanent changes to banking reserves and securities levels.
Matched Sale-Purchase Agreements vs. Open Market Operations
Related terms:
Avalize
To avalize is the act of having a third party guarantee the obligations of a buyer to a seller per the terms of a contract. read more
Bank Of Canada (BOC)
The Bank Of Canada is the central bank of Canada. It influences the country's economy and money supply. read more
Easy Money
Easy money is when the Fed allows cash to build up within the banking system in order to lower interest rates and boost lending activity. read more
Federal Funds Rate
The federal funds rate is the target interest rate set by the Fed at which commercial banks borrow and lend their excess reserves to each other overnight. read more
Federal Reserve System (FRS)
The Federal Reserve System is the central bank of the United States and provides the nation with a safe, flexible, and stable financial system. read more
Fed Pass
A Fed pass happens when the U.S. central bank increases the availability of credit by creating additional reserves in the banking system. read more
Federal Open Market Committee (FOMC)
The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System that determines the direction of monetary policy. read more
Open Market Operations (OMO)
The Federal Reserve uses open market operations (OMO) to achieve the target federal funds rate it has set by buying or selling U.S. Treasuries. read more
Purchase and Resale Agreements (PRAs)
Purchase and Resale Agreements (PRAs) are a monetary policy operation by the Bank of Canada intended to improve liquidity in the money market. read more