Latest Fed Repo Action Suggests Dealers in Quarter-End Scramble

(Bloomberg) -- Primary dealers amped up demand for liquidity at the Federal Reserve Bank of New York’s term repo operation Thursday as institutions scrambled to secure funding to cover the end of the quarter.

The operation for 14-day repurchase agreements was oversubscribed -- attracting $72.8 billion in bids -- even after the New York Fed doubled the maximum size of the offering to $60 billion. The overnight operation, conversely, attracted just $50.1 billion of bids, around half the $100 billion maximum offering. The bank said Thursday that the maximum size for Friday’s operations for term and overnight repo will be in line with the most recent offerings.

For further details on the overnight operation, click here.

For further details on the 14-day operation, click here.

The maximum offering for both operations was upsized Thursday. The previous 14-day operation of $30 billion on Tuesday was more than twice oversubscribed, while Wednesday’s $75 billion overnight action saw $92 billion of bids submitted.

“The overnight operation gives me some hope, but the term repo still keeps my blood pressure high,” said Priya Misra, head of interest rate strategy at TD Securities in New York. “There’s still demand for funding for quarter-end that’s not being met and they got one more chance.”

The central bank has been injecting liquidity into the funding markets since Sept. 17, when the rate on overnight general collateral repo jumped to 10%, about four times greater than usual levels, as cash reserves were out of alignment with the volume of securities on dealer balance sheets.

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Nick Baker, Debarati Roy

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