The Federal Reserve conducted a second auction under its Term Security Lending Facility (TSLF) Thursday, auctioning $25 billion in short-term securities, though interest in the auction exceeded the offering with almost $47 billion in submissions.

A total of $46.9 billion in bids was submitted for a bid-to-cover ratio of 1.88. The stop-out interest rate awarded was 0.16%.

The type of collateral accepted was Treasury General Collateral Schedule 1, with a maturity date of May 2, 2008.

The purpose of the TSLF is to provide liquidity to primary dealers who find themselves unable to move their securities around under normal selling and trading conditions.

The Fed's auction offers general collateral in exchange for dealers' eligible collateral and is intended to promote liquidity in financing markets for Treasury and other collateral, according to the Fed.

The TSLF securities will be held for 28-day terms. Dealers bid competitively in a single-price auction held weekly on Thursdays.

Only primary dealers are eligible to participate in the TSLF, though participation is voluntary, the Fed noted.

By Patrick McGee edited by Steve Campbell and Stephen Huebl