WASHINGTON - While most-favored hedge funds and trading REITs got somewhat better terms in the last three months, overall bank lending terms have remained "generally stable" since the beginning of the year, the Federal Reserve reported Monday.

About a fifth of the 22 respondents indicated somewhat of an increase in the posting of collateral other than cash and U.S. Treasury securities, the survey suggested. But any changes in routine credit provision were only at the margins with important categories "basically unchanged."

"Only about one-fourth of dealers, a significantly smaller fraction than in the March survey, noted an increase in the intensity of efforts by hedge funds to negotiate more-favorable price and nonprice terms over the past three months," the Fed report said.

A slightly larger fraction than in the previous survey, about a quarter, "suggested that the use of financial leverage by hedge funds had decreased somewhat over the past three months."

The Fed said a "vast majority" of dealers noted that "the availability of additional financial leverage under agreements currently in place with hedge funds had remained basically unchanged."

Answering one-time questions that accompanied the survey, the senior lending officrs said nearly a fifth of the dealers indicated "an increase in appetite" to take on credit and duration risk over the past year among mutual funds, pension plans, endowments and insurance companies.

About a third of the bank respondents indicated that derivatives clearing had increased over the past year, but still new client over-the-counter derivatives trades cleared through derivatives prime brokerage arrangements was still 10% or less.

Responding to another question, about a third of the banks surveyed indicated an increase in the volume of financing provided to clients through bilateral repos but only for non-agency residential mortgage backed securities collateral

"Of note," the report said, about one-third of respondents, on net, indicated an increase in the volume of financing provided to clients through bilaterial repos using one particular type of collateral, residential mortgage backed securities.

The days' Senior Credit Officer Opinion Survey on Dealer Financing Terms, with its 22 respondents, is considerably smaller in scope that the Fed's other survey of lending terms, the Senior Loan Officer Opinion Survey.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.