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The Fed Is Girding for Repo Trouble Monday Even as Market Calms

Published 09/27/2019, 12:50 PM
Updated 09/27/2019, 01:14 PM
© Reuters.  The Fed Is Girding for Repo Trouble Monday Even as Market Calms

(Bloomberg) -- The repo market has calmed down, but the Federal Reserve is gearing up its safeguards in case turmoil resurfaces on Monday.

Last week’s craziness was not the first time in recent memory that U.S. money markets have shown signs of stress. It’s tended to happen around quarter-end, most notably in late December.

The third quarter ends Monday. So, for the past two days, the New York Fed has run $100 billion overnight repo operations -- bigger than the $75 billion daily liquidity injections that began early last week -- plus separate 14-day operations. Neither of Friday’s actions were fully subscribed and short-term lending rates are well below the peak seen last week, a sign order has been restored for now.

But on Monday, that larger $100 billion size will be repeated and the overnight operation will run from 7:45 a.m. to 8 a.m. New York time, earlier than prior morning actions. Both signal the Fed is girding for rates to spike again.

As of now, it appears that the New York Fed “was able to satiate primary dealer demand for term funding at these rate levels,” Jon Hill, a strategist at BMO Capital Markets, wrote in a note. “The question then becomes how much of the reserve infusion will be able to permeate through markets and reach other participants.”

Hill said that while there may still be upward pressure on short-term rates on Monday, it may be more muted than some are fearing.

Trading in repurchase agreements suggests rates are coming down. The overnight rate for quarter-end is being quoted at approximately 2.85%, down from about 3.25% around 9 a.m. Friday, according to traders familiar with the transactions who asked to not be identified because they are not authorized to speak publicly. But that’s far above the current level of around 1.88%, according to ICAP (LON:NXGN) data.

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The overnight repo rate soared to a record high of 10% last week amid a funding crunch that drew scrutiny to the size of the Fed’s balance sheet and fueled calls for the central bank to start injecting liquidity.

The central bank responded to the funding pressures, which appeared to be building around quarter-end, with three term operations this week and a daily schedule of overnight actions through Oct. 10.

Latest comments

Printing money is great for the government and those who get that money first. Everyone else loses.
Reduce cash. Buy guns and ammo. You may well need them.
The same captains are steering the ship. Why would the course differ?
Our currency is looking like monopoly money and is backed by thin air. With every single paper injection, we middle classers on down lose our shirts. People have made billions on paper shifts leaving the hapless public holding a sack of sorrow.. Wonder how the incredibly rich keep amassing more? Take a look at your bills outpacing your pay more often than not these days.
I agree. It’s like some combination of musical chairs and legerdemain. Someday we’ll wake up to the patently obvious... dollars... and all fiat currencies for that matter... are only worth their face value IF YOU BELIEVE that it does. When that delusion is lifted then it’ll be like the morning pay window in the Weimar Republic in 1922... you’ll rush out and buy as many “things” (what is immaterial—- so long as it is tangible) as you can before the deluded shop owner concludes that he’ll do better locking the doors and moving his inventory into a guarded warehouse.
The hapless public ha the somewhat same opportunity to invest their money and take the risk it will grow or buy a Harley, buy some cool Harley clothing and get  $4000.00   worth of sleeve tats all purchased on credit ,  so when driving around the neighborhood you will think you look cool.
Monday, billions injected.  Opps, not enough.  Tuesday, billions injected.  Hmm, still not enough.  Wednesday, billions injected.  Still not enough, but we're on top of it.  Thursday, billions injected.  See?  We're on top of it.  Friday, billions injected.  We made it to the weekend.  Clearly things are calming down.  Especially after we inject billions more on Monday!
Our politicians and unionized government employee crime gang collude with the corporate criminals.
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