U.S. Markets closed

Fed Plans Longer Repo Actions to Mitigate Year-End Market Risks

Alexandra Harris

(Bloomberg) -- The Federal Reserve Bank of New York announced plans to conduct repurchase-agreement operations within the coming month that have longer terms than those it has done previously.

It will now conduct two operations each with terms of 42 days, the New York Fed said on its website. One of these will have a maximum size of at least $25 billion and the other $15 billion. The bank is also planning a $15 billion 28-day operation as well as a series of actions with terms of 13, 14 and 15 days, tenors it has used previously.

The new longer operations “are intended to help offset the reserve effects of sharp increases in non-reserve liabilities later this year and ensure that the supply of reserves remains ample during the period through year end,” the New York Fed said in a statement. “They are also intended to mitigate the risk of money market pressures that could adversely affect policy implementation.”

The schedule released by the Fed includes term operations to take place between Nov. 19 and Dec. 12. The decision to implement some operations with longer terms will allow some funding to carry past the turn of the year, which some have cited as a potential crunch point for funding markets.

“The longer dated maturities will offer an early glimpse of year-end cash demand,” BMO strategists Jon Hill, Ben Jeffery and Ian Lyngen wrote in a note to clients.

The central bank has been injecting liquidity into the funding markets since Sept. 17, when the rate on overnight general collateral repo jumped to 10% from around 2%. The Fed also started buying Treasury bills last month to add reserves into the system.

The size of daily overnight operations will be maintained at $120 billion.

The Fed also released on Thursday schedules for its planned monthly secondary Treasury reinvestment and reserve management purchases. The central bank plans to buy $60 billion of T-bills for its reserve management program from Nov. 15 to Dec. 6. This is in line with what it has already been doing. The Fed also plans to buy about $20 billion of Treasuries weighted across different maturities as part of its reinvestment operations.

(Updates with comment from New York Fed.)

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net, Benjamin Purvis

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.