NEWS： Fed's year-end repo only a small amount of subscription
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The Federal Reserve on Tuesday avoided funding tensions at the end of the year as large banks subscribed only a fraction of the $150 billion supply in the last overnight repo operation in 2019, while borrowing costs fell to their lowest level since March 2018.
The Federal Reserve Bank of New York has been injecting liquidity into the repo market in order to reduce the possibility of financing tension, which occurred earlier in September, resulting in an overnight loan cost of up to 10%, more than four times the level of the Federal Reserve's interest rate at that time, causing special concerns about the year-end funding situation.
"It looks like the Fed's move did work," said Tom Simons, money market analyst at Jefferies in New York. "The Fed acted cautiously, and fortunately, so far the end of the year has been quiet."
The bank subscribed $25.6 billion for the Fed's overnight repo operation, which provides funding during key year-end periods. The bank also subscribed only a small part of its three liquidity operations on Monday.
Banks and investors borrow in the repo market to finance asset purchases and other business expenditures. But by the end of the year, banks may be reluctant to take risks, and the money borrowers can raise may be exhausted.
"There is really no sign of US dollar funding pressure in the market," said Mark cabana, head of US interest rate strategy at BofA Merrill Lynch. He said the smooth year-end performance was partly due to the Fed's actions and the bank's pre planning.
By the beginning of January, the Federal Reserve had pumped $255.6 billion into the repo market to ensure the smooth operation of the financial system at the end of the year. The Fed will continue to inject tens of billions of dollars into the repo market every day, at least until the end of January, including another $185 billion one-day and regular repo operation when the market opens for a new year on Thursday.
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