Ebbing Liquidity Demand Leaves Fed Repo Actions Undersubscribed

(Bloomberg) --

Dealers on Tuesday took less than the full amount of cash available at the Federal Reserve Bank of New York’s two repurchase agreement operations, suggesting their liquidity needs are being met.

The New York Fed took $38.85 billion of securities in its 14-day term repurchase agreement operation, less than the $45 billion on offer. It was the first of eight such actions announced by the central bank last week, and follows several similar operations at the end of the third quarter.

An overnight repo operation was also undersubscribed, with dealers submitting $37.5 billion of bids, half the $75 billion maximum. These operations are slated to continue through Nov. 4.

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.

The rate on overnight general collateral repurchase agreements on Tuesday was around 1.90%, according to ICAP. That’s within the central bank’s target range for the fed funds rate, another short-term benchmark.

To contact the reporters on this story: Alexandra Harris in New York at aharris48@bloomberg.net;Benjamin Purvis in New York at bpurvis@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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