Fed Adds $88.1 Billion to Financial System in Latest Repo Transaction
10 October 2019 - 2:45PM
Dow Jones News
By Micah Maidenberg
The Federal Reserve Bank of New York added $88.1 billion to the
financial system Thursday, using the market for repurchase
agreements, or repo, to relieve funding pressure in money
markets.
Banks asked for $45.5 billion in overnight reserves, all of
which the Fed accepted, offering collateral in the form of Treasury
and mortgage securities.
In a separate operation, banks asked for $42.6 billion in 14-day
loans, all of which was accepted by the Fed, offering collateral in
the form of Treasury and mortgage securities.
In the repo market, borrowers seeking cash offer lenders
collateral in the form of safe securities -- frequently Treasury
bonds -- in exchange for a short-term loan. The term of these loans
can be as short as overnight.
When the Fed adds money to the financial system through the repo
market, it is acting as a lender. In typical repo-market
transactions, lenders can include money-market mutual funds, banks
or hedge funds that are seeking to earn a slightly higher rate of
interest than what is available from holding very short-term
government securities. The borrowers are often banks, securities
firms or hedge funds that use the cash to finance positions in the
market.
Banks and hedge funds borrow or lend depending on their needs
and investment goals.
The Fed began offering repo loans last month after a shortage of
available cash in the financial system led repo rates to climb as
financial companies scrambled for overnight funding. The actions
marked the first time since the financial crisis that the Fed had
taken such actions.
Last week, the Fed said it would extend its scheduled repo
lending through Nov. 4. It said it would continue to offer
overnight repos, which are meant to relieve funding pressure in
money markets, for an aggregate amount of at least $75 billion each
night through Nov. 4.
The Fed said it would extend its two-week repo loans as well. It
plans to offer at least $45 billion between Oct. 8 and Oct. 11.
After that, the amount available will drop to $35 billion through
Oct. 29.
Write to Micah Maidenberg at micah.maidenberg@wsj.com
(END) Dow Jones Newswires
October 10, 2019 09:30 ET (13:30 GMT)
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