Fed Adds $72.8 Billion to Markets, Balance Sheet Moves to $4.07 Trillion--Update
December 06 2019 - 01:02PM
Dow Jones News
By Michael S. Derby
The Federal Reserve Bank of New York added $72.8 billion in
temporary liquidity to financial markets Friday.
The intervention came via three-day repurchase agreements, or
repos. 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's money-market operations are aimed at ensuring that the
financial system has enough liquidity and that short-term borrowing
rates are stable and consistent with Fed goals, with the central
bank's federal-funds rate staying within the 1.5%-to-1.75% target
range. The effective fed-funds rate stood at 1.55% on Thursday. The
broad general collateral rate for repo trading stood at 1.52%, also
for Thursday.
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, the biggest of which stemmed from
corporate tax payments and the settlement of Treasury debt
auctions. . The Fed has used similar operations for decades to
manage short-term rates.
Since the large interventions started, money-market rates have
calmed down. The Fed is using temporary operations to tamp down any
possible wild moves, while purchasing Treasury bills to build up
reserves in the banking system. It hopes that by buying Treasury
bills, the central bank will be able to cut back on repo
interventions at the start of next year.
The Fed also bought $7.5 billion in Treasury bills on Friday.
Eligible banks offered the Fed $23.17 billion.
The central bank currently expects to buy Treasury bills through
the middle of next year.
On Thursday, the Fed r eported that its balance sheet had risen
from $3.8 trillion in September to $4.07 trillion as of Wednesday.
Some $208 billion in repo interventions were also outstanding as of
Wednesday.
The Fed is also taking stock of whether post-financial-crisis
banking regulations may be causing issues in the markets by driving
banks to hold reserves over other highly liquid securities. It is
also weighing whether it might expand its tool kit with a facility
that would allow eligible financial firms that hold high-quality
securities to exchange them for reserves quickly at the Fed.
Write to Michael S. Derby at michael.derby@wsj.com
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
December 06, 2019 12:47 ET (17:47 GMT)
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