The Fed is starting to come to terms with the idea that the funding squeeze which rippled across money markets this week to the apparent surprise of policymakers isn’t likely to abate in the absence of a concerted effort that suggests the problem is being accorded the concern it deserves.
Friday’s overnight repo (which marked the fourth-consecutive day of liquidity injections) was oversubscribed, albeit to a lesser degree than Thursday’s operation, underscoring persistent jitters, even as funding rates show the stress is abating.
On Thursday evening, BofA’s Mark Cabana warned of “collateral damage” in the form of rolling stop-outs and messy unwinds in leveraged rates trades further out the curve if repo funding levels remained elevated.
“A term repo or NY Fed schedule of expected O/N repo operations similar to what is done for USTs would help ease this fear”, Cabana went on to say, suggesting what actions could be taken to allay concerns that the Fed might stop conducting the ad hoc operations or fail to provide sufficient liquidity when they are held.
Fast forward to a few hours after Friday’s operation and sure enough, the New York Fed released a schedule which includes a trio of 14-day term operations clearly aimed at getting markets through the expected month- and quarter-end squeeze.
“The Open Market Trading Desk will conduct a series of overnight and term repurchase agreement operations to help maintain the federal funds rate within the target range”, the New York Fed said, in what amounts to an admission that those who have been fretting about things getting worse over the next 10 or so days are probably correct. Swap spreads widened on the news.
Below, find the schedule and do note that although this helps, it still doesn’t solve the longer-term problem – it’s just a bigger Band-Aid, in lieu of an announcement on balance sheet expansion or a standing facility.
Via the New York Fed
The Desk will offer three 14-day term repo operations for an aggregate amount of at least $30 billion each, as indicated in the schedule below. The Desk also will offer daily overnight repo operations for an aggregate amount of at least $75 billion each, until Thursday, October 10, 2019. Awarded amounts may be less than the amount offered, depending on the total quantity of eligible propositions submitted. Securities eligible as collateral include Treasury, agency debt, and agency mortgage-backed securities. Additional details about the operations will be released each afternoon for the following day’s operation(s).
After October 10, 2019, the Desk will conduct operations as necessary to help maintain the federal funds rate in the target range, the amounts and timing of which have not yet been determined.
|OPERATION DATE||OVERNIGHT||14-DAY TERM||TERM MATURITY DATE|
|Monday, 9/23/2019||$75 billion||No term operation|
|Tuesday, 9/24/2019||At least $75 billion||At least $30 billion||Tuesday, 10/08/2019|
|Wednesday, 9/25/2019||At least $75 billion||No term operation|
|Thursday, 9/26/2019||At least $75 billion||At least $30 billion||Thursday, 10/10/2019|
|Friday, 9/27/2019||At least $75 billion||At least $30 billion||Friday, 10/11/2019|
|Monday, 9/30/2019 – Thursday, 10/10/2019||At least $75 billion||No term operations|
For Monday, September 23, 2019, the Desk will conduct an overnight repo operation for an aggregate amount of up to $75 billion. The operation will be conducted from 8:15 AM ET to 8:30 AM ET. Primary Dealers will be permitted to submit up to two propositions per security type. There will be a limit of $10 billion per proposition submitted in this operation. Propositions will be awarded based on their attractiveness relative to a benchmark rate for each collateral type, and are subject to a minimum bid rate of 1.80 percent.