Fed Adds $82 Billion to Financial Markets Amid Demand for Longer-Term Liquidity
By Michael S. Derby
Big banks' demand for longer term Federal Reserve liquidity
flared up again on Tuesday.
The Federal Reserve Bank of New York said it intervened twice
via repurchase agreements, or repos. Eligible banks draw $47
billion in overnight liquidity from the central bank, less than the
$120 billion the Fed was willing to provide. But the 14-day repo
saw banks offer the Fed $43.2 billion in securities, against the
Fed's $35 billion cap. Collectively, the Fed added $82 billion in
temporary liquidity to the financial system.
On Monday, the Fed had added $60.7 billion overnight
Fed repo interventions take in U.S. Treasurys, agency and
mortgage bonds from eligible banks in what is effectively a
short-term loan of central-bank cash, collateralized by the
securities. Banks eligible to access these operations -- the firms
are called primary dealers -- are limited in the amount of
liquidity they can tap from the Fed.
The banks pay interest to the central bank for accessing its
money. The amount of money added by the Fed isn't cumulative, as
older operations may be maturing.
When the Fed last updated information on its holdings on
Thursday, it said its balance sheet stood at $4.11 trillion as of
Jan. 9, versus $3.8 trillion in September. About $210.6 billion in
repo interventions were also outstanding then.
Fed repo interventions are aimed at keeping the federal-funds
rate within the 1.50% and 1.75% range, and to limit the volatility
of other money market rates.
The Fed restarted its repo operations last September after
unexpected market volatility and steadily increased the sizes of
its operations. Later Tuesday the Fed is slated to update its
schedule for future repo operations.
Observers are unsure if the Fed will lower what it is willing to
offer in temporary money or keep the sizes the same.
The Fed had initially planned to end its repo interventions at
the end of the month but continuing issues in money markets have
extended the horizon for the effort. Some on Wall Street think the
repo operations could continue into the early summer. Meanwhile,
the Fed is weighing other options, like the adoption of new tools
or new paths to liquidity, as a longer-term solution.
Write to Michael S. Derby at firstname.lastname@example.org
(END) Dow Jones Newswires
January 14, 2020 10:56 ET (15:56 GMT)
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