Describes the long-standing interest of the Federal Reserve in promoting the formation of a voluntary dealer association through which it could encourage the adoption of desirable market practices and discourage undesirable practices. The formation of such a group finally came to pass in the wake of adverse publicity about dealer behavior.

Following a 1963 loss of Treasury securities held by a Federal Reserve Bank acting as custodian for a member bank, staff of the Board of Governors and the twelve district Reserve Banks undertook to replace paper securities held at a Reserve Bank with book-entry records. The program was largely complete by the end of 1970 and provided the foundation for the subsequent expansion of the book-entry system to include Treasury securities held by member banks.

Describes the increasing scale and scope of open market operations as the Open Market Desk at the New York Reserve Bank sought to moderate fluctuations in the Federal funds rate attributable to bank reserves management practices. Innovations in System repo operations included relaxation of the maturity limit on repo collateral, introduction of back-to-back repos (where the Desk financed repo collateral that primary dealers sourced from their customers), introduction of repos on federal agency debt, and the development of matched sale-purchase agreements to drain transient increases in reserves.

Describes the continuing efforts to offset transient fluctuations in autonomous factors. Examines in particular the decision of the Treasury to keep virtually all of its cash balances at Federal Reserve Banks (in order to benefit indirectly from historically high short-term interest rates) and the consequences of that decision for open market operations.

Describes the transition from an interval of non-inflationary growth at the beginning of the decade to the first appearance of what would later become a virulent inflation. Start/stop efforts to rein in inflation led to more volatile interest rates and growing Federal Reserve impatience with its commitment to maintaining an “even keel” during Treasury offerings.

Examines the two worlds of Treasury finance: regular and predictable auction offerings of bills versus fixed-price offerings of coupon-bearing debt at times and maturities that were not always anticipated by market participants. Reviews the successful introduction of advance refundings and a failed experiment in bond auctions.

Describes studies undertaken by the Federal Reserve Bank of New York and the FOMC to assess the problems associated with wartime and postwar monetary policy and how the System should proceed now that ceilings on interest rates had been removed. Places particular emphasis on the scope of System support for primary market sales of Treasury debt and System relations with primary dealers.

Strengthening economic activity in 1955 led to rising interest rates that forced the Fed to stand up to its commitment to support Treasury offerings priced at market levels. This chapter describes the development of “even keeling” – the practice of stabilizing the Treasury market while the Treasury was offering new securities – and the continuing preference for repos, rather than outright purchases and sales, for offsetting short-term fluctuations in autonomous factors.

Reviews the growing conflict, in 1955, between the Fed’s commitment to support Treasury offerings priced at market levels with its desire to avoid direct support of Treasury offerings.

Summarizes the expansion of regular and predictable issuance of coupon-bearing Treasury debt, the introduction of STRIPS, foreign-targeted securities, and inflation-protected securities, and the rennovation of the auction process. Reviews the creation of the Government Securities Clearing Corporation.

Summarizes the institutional evolution of Federal Reserve open market operations, the U.S. government securities market, and Treasury debt management from 1951 to 1979.

Describes the infrastructure of the Treasury market on the eve of the Accord, including the gradual, not yet completed, suspension of wartime ceilings on Treasury yields, methods for selling securities in the primary market (regular and predictable bill auctions versus fixed-price cash and exchange offerings of coupon-bearing debt), and the role of dealers in secondary market trading.

Describes the growth of the primary dealer community in the 1970s, the development of standards for acceptance as a primary dealer, the growth of the inter-dealer broker market, and the advent of screen brokers.