(Bloomberg) – The Federal Reserve Bank of New York will shrink its repurchase business more than expected. Starting with Friday’s overnight offer, it is a sign that officials can easily remove liquidity without reviving the financial markets.
The central bank announced on Thursday a new schedule for overnight repo operations and 14 days until March 12. As of next week, the term offers will decrease by USD 5 billion to a maximum of USD 25 billion and the offers from March 3 will shrink again to a maximum of USD 20 billion. Meanwhile, the bank’s day-to-day operations will decrease by $ 20 billion to a $ 100 billion limit.
This is the second consecutive month that the Fed has reduced its liquidity injections. In mid-January, it was announced that the term would be reduced by $ 5 billion from February. These operations were oversubscribed this month, but analysts say trader demand has not indicated renewed stress in the financial markets or concerns about bank reserves. Instead, the strong bid is only seen as an underline that the prices that traders can get from these operations are lower than the prevailing market prices.
“This decline is slightly faster than expected,” said Gennadiy Goldberg, a leading US interest rate strategist at TD Securities. “Given the recent functioning of money markets, they are likely to be a little more confident that they will be able to take away some of the repo support faster without disrupting the market.”
The newly planned offers will provide liquidity until March 26th. The Fed has made repos and purchases of Treasury bills to keep control of short-term interest rates and strengthen bank reserves. Efforts have calmed the markets since the September surge, with overnight repo rates up to 10%, and helped dispel concerns about a possible money crisis in late 2019.
The repo market has also had other calendar events, such as B. Treasury auction settlement dates experience low volatility when the market tends to indigestion due to the inflow of collateral.
Fed chairman Jerome Powell repeated this week in Congress that the central bank is ready to adjust operations if conditions warrant. Powell said last month that the Fed would continue overnight and repo operations until April at least.
The Fed announced on Thursday that it plans to continue buying $ 60 billion in treasury bills each month for reserve management.
To contact the reporter about this story: Alexandra Harris in New York at [email protected]
To contact the editors responsible for this story: Benjamin Purvis at [email protected], Mark Tannenbaum
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