Both of the Fed’s term repos were oversubscribed on Thursday, which is both unsurprising and worrying at the same time.
Dealers submitted $82.6 billion of bids for the $50 billion on offer in the one-month (25-day) operation. That’s the first of a trio of one-month ops the Fed added in the new schedule.
Later, dealers submitted $87.1 billion of bids for the 14-day term repo, making it nearly two times oversubscribed (the max on offer was $45 billion).
The Fed upsized its overnight and 14-day repos earlier this week (from $100 billion to $150 billion and from $20 billion to $45 billion, respectively).
The new schedule (out Wednesday) kept the $45 billion max on the two-week actions, but upped the O/N max to $175 and added three one-month operations of at least $50 billion.
Every 14-day term operation since last month has been oversubscribed.
Thursday’s overnight operation was undersubscribed. In total, the Fed injected nearly $200 billion today – $103.10 in the O/N op and $95 billion across the 14-day and one-month actions.
Here’s a look at demand for the O/N ops since October (note that the $132 billion the New York Fed took on Wednesday was the most since the repo crunch in September forced the Fed to step in to restore orderly functioning):
It’s hardly unfair to suggest that a cash crunch of some stripe is afoot. Libor-OIS is the widest since 2009, and cross-currency basis are widening out materially.
Calls for more liquidity operations and the expansion of dollar swap lines are getting (much) louder.
Meanwhile, US stocks tripped the circuit breaker at the open, falling 7%, after futures traded limit-down overnight.
“There were 121 stocks in the S&P 500 that didn’t even manage to open on the NYSE before the circuit breaker kicked in”, Bloomberg’s David Wilson wrote.
It was the second time this week that US equities have been halted after the cash open.