US Fed to scale back repo operations
14 April 2020 New York
Image: Shutterstock
US Federal Reserve will begin winding down its enhanced repo operations over the next month in light of more stable market conditions.
For just over a month, the central bank has been forced to pump additional liquidity into US money markets via an enhanced timetable and scale of overnight and term repo operations.
The extra cash is aimed at steadying the ship during the market volatility brought on by the COVID-19 pandemic, as well as Q1 quarter-end.
As markets settle, the open market trading desk at the Fed has released its overnight repo operations schedule for the next month (14 April to 13 May), which it says will be the last month of heightened activity.
The frequency of repo operations will be reduced over the coming weeks, with the Fed aiming to return to its normal schedule as of 4 May.
From this point, the Fed will conduct one overnight repo operation per day in the morning, thereby closing the additional afternoon operation it has been running since 16 March.
Until then, the morning and afternoon overnight repo operations will maintain the minimum bid rate of 10bps, with a proposition limit of $20 billion and each has an aggravate operation limit of $500 billion.
Meanwhile, the frequency of three-month repo operations will be reduced to once every two weeks from once a week.
One-month repo operations will continue to be conducted once per week.
The Fed’s open market trading desk says these plans are contingent on the market’s continued stabilisation.
The desk adds that it will continue to adjust its repo operations as needed to ensure that the supply of reserves remains ample and to support the smooth functioning of short-term US dollar funding markets.
The Fed began ramping up its fiscal response to the virus-fuelled liquidity squeeze on 9 March by increasing its daily overnight repo operations from at least $100 billion to at least $150 billion.
It also bolstered the amount offered for some of its two-week term repo operations from at least $20 billion to at least $45 billion.
On 11 March, the Fed went further by adding additional term repo operations.
As panic set in and US equity markets saw their worst trading days since the 2008 crisis amid a global sell-off, the Fed was forced to double its overnight repo capacity by adding a second daily operation to be conducted in the afternoon from 16 March.
For just over a month, the central bank has been forced to pump additional liquidity into US money markets via an enhanced timetable and scale of overnight and term repo operations.
The extra cash is aimed at steadying the ship during the market volatility brought on by the COVID-19 pandemic, as well as Q1 quarter-end.
As markets settle, the open market trading desk at the Fed has released its overnight repo operations schedule for the next month (14 April to 13 May), which it says will be the last month of heightened activity.
The frequency of repo operations will be reduced over the coming weeks, with the Fed aiming to return to its normal schedule as of 4 May.
From this point, the Fed will conduct one overnight repo operation per day in the morning, thereby closing the additional afternoon operation it has been running since 16 March.
Until then, the morning and afternoon overnight repo operations will maintain the minimum bid rate of 10bps, with a proposition limit of $20 billion and each has an aggravate operation limit of $500 billion.
Meanwhile, the frequency of three-month repo operations will be reduced to once every two weeks from once a week.
One-month repo operations will continue to be conducted once per week.
The Fed’s open market trading desk says these plans are contingent on the market’s continued stabilisation.
The desk adds that it will continue to adjust its repo operations as needed to ensure that the supply of reserves remains ample and to support the smooth functioning of short-term US dollar funding markets.
The Fed began ramping up its fiscal response to the virus-fuelled liquidity squeeze on 9 March by increasing its daily overnight repo operations from at least $100 billion to at least $150 billion.
It also bolstered the amount offered for some of its two-week term repo operations from at least $20 billion to at least $45 billion.
On 11 March, the Fed went further by adding additional term repo operations.
As panic set in and US equity markets saw their worst trading days since the 2008 crisis amid a global sell-off, the Fed was forced to double its overnight repo capacity by adding a second daily operation to be conducted in the afternoon from 16 March.
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