By Michael S. Derby 

The Federal Reserve Bank of New York added $103.65 billion in temporary liquidity to the financial system on Thursday.

The intervention came via overnight repurchase agreements, or repos, that totaled $74.45 billion, and via 14-day repos totaling $29.2 billion. The Fed took all the securities offered to it by eligible banks.

Fed repo interventions take in Treasury and mortgage securities from eligible banks in what is effectively a short-term loan of central-bank cash, collateralized by the securities.

The Fed also bought $7.501 billion in Treasury bills. Eligible banks submitted $34.3 billion in securities.

The Fed's interventions are aimed at ensuring that the financial system has enough liquidity and that short-term borrowing rates remain well-behaved, with the central bank's federal-fund rate staying within the 1.5%-to-1.75% target range. The effective fed-funds rate stood at 1.55% on Wednesday. The broad general collateral rate for repo trading stood at 1.53%, also for Wednesday.

The Fed has been intervening in markets in the current fashion since mid-September, when short-term rates unexpectedly shot up on a confluence of factors. Since then, money-market rates have been well behaved.

The Fed is using temporary operations to tamp down on any possible volatility, while purchasing Treasury bills to build up reserves in the banking system. It hopes that by buying Treasury bills it will be able to cut back on repo interventions at the start of next year.

Minutes that detailed the proceedings of two Fed meetings in October showed that officials were still working on a more enduring solution to ensure markets have enough liquidity to prevent unwanted swings in short-term rate markets.

Central-bank staffers laid out two options for officials to follow. One entails pressing forward with regular, modest-sized temporary repo operations for well into the future. The other sees the Fed launching what most refer to as a standing repo facility that would allow eligible banks to quickly hand Treasurys to the Fed in exchange for money, in a tool that is designed to cap short-term rate movements. The meeting minutes didn't show officials coming to any decisions.

The meeting minutes also showed that in an Oct. 4 videoconference held by Fed officials, most officials supported an immediate announcement of Treasury bill purchases and didn't want to wait until the formal Oct. 29-30 Federal Open Market Committee meeting. They worried that if they delayed the news it would be harder to drive home the point that the bill purchases were an entirely technical effort to bolster reserves, with no monetary policy implications.

Write to Michael S. Derby at michael.derby@wsj.com

 

(END) Dow Jones Newswires

November 21, 2019 16:59 ET (21:59 GMT)

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