Skip to content
More from
Bloomberg
Fixed Income
relates to Emerging Markets on Edge as Goldman and Deutsche Bank Flag Risks
relates to Treasuries Face High Bar for Yield Liftoff in Calmest-Ever Trade relates to Egypt Prepares to Issue Region’s First Green Sovereign Bond relates to ECB Should Maintain Significant Monetary Stimulus, De Cos Says relates to Final Jobs Report Before U.S. Election in Store: Eco Week Ahead relates to KKR is Refinancing Telxius Deal Debt, Cinco Dias Reports relates to Bondholders Facing Zambia Haircut Cast Wary Eyes Over Africa relates to European Bond Market May Look to ECB for Help Amid Supply Risks relates to Tussle for ECB’s Last Big Job for Years Becomes Two-Man Race relates to American Air Gets $5.48 Billion U.S. Loan in Upsized Deal relates to Emerging Markets on Edge as Goldman and Deutsche Bank Flag Risks
relates to Treasuries Face High Bar for Yield Liftoff in Calmest-Ever Trade relates to Egypt Prepares to Issue Region’s First Green Sovereign Bond relates to ECB Should Maintain Significant Monetary Stimulus, De Cos Says relates to Final Jobs Report Before U.S. Election in Store: Eco Week Ahead relates to KKR is Refinancing Telxius Deal Debt, Cinco Dias Reports relates to Bondholders Facing Zambia Haircut Cast Wary Eyes Over Africa relates to European Bond Market May Look to ECB for Help Amid Supply Risks relates to Tussle for ECB’s Last Big Job for Years Becomes Two-Man Race relates to American Air Gets $5.48 Billion U.S. Loan in Upsized Deal relates to Emerging Markets on Edge as Goldman and Deutsche Bank Flag Risks
relates to Treasuries Face High Bar for Yield Liftoff in Calmest-Ever Trade relates to Egypt Prepares to Issue Region’s First Green Sovereign Bond relates to ECB Should Maintain Significant Monetary Stimulus, De Cos Says relates to Final Jobs Report Before U.S. Election in Store: Eco Week Ahead relates to KKR is Refinancing Telxius Deal Debt, Cinco Dias Reports relates to Bondholders Facing Zambia Haircut Cast Wary Eyes Over Africa relates to European Bond Market May Look to ECB for Help Amid Supply Risks relates to Tussle for ECB’s Last Big Job for Years Becomes Two-Man Race relates to American Air Gets $5.48 Billion U.S. Loan in Upsized Deal
Markets

Fed’s Undersubscribed Repo Still Leaves Murky Year-End Outlook

Updated on

Fed’s Undersubscribed Repo Still Leaves Murky Year-End Outlook

  • Market won’t know ‘last-minute needs’ until Dec. 31: Rajappa
  • Thursday’s term offering was below the $35 billion maximum

The Federal Reserve Bank of New York’s term operation to inject cash into the financial system over year-end was undersubscribed on Thursday. For some analysts, that doesn’t necessarily mean the risk of a funding crunch is in the rear-view mirror.

Primary dealers submitted $31.3 billion in bids for the Fed’s 14-day term repo operation, the first two-week offering that spans year-end. That was less than the $35 billion on offer. It was also the fifth term offering aimed at easing liquidity concerns on Dec. 31.

Even with the central bank offering a total of $490 billion of liquidity via repo operations for the turn of the year, the financing market is still commanding a premium for Dec. 31 funding. The rate on overnight general collateral repurchase agreements for year-end is trading between 3.5% and 4%.

“There’s still the uncertainty going into year-end if there are cash flows or last-minute needs of balance sheet,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “I don’t think we know until we get to the 31st what the last-minute needs are.”

The central bank has been injecting liquidity into the repo market since the Sept. 17, when the overnight rate for general collateral repurchase agreements spiked to 10% from around 2%. It has also been buying Treasury bills to add reserves to the system.

The Fed will conduct three more term operations for the turn, as well as a one-day forward settlement operation on Dec. 30 that settles on Dec. 31 and matures Jan. 2. Already, $125 billion has been pumped in through four earlier term actions.

BMO Capital Markets strategists warn against drawing any decisive conclusion about Thursday’s operation.

“We’d caution against jumping to the conclusion that this is because primary dealer balance sheets are already maxed out because of the pricing factor,” BMO strategist Jon Hill wrote in a note to clients.

Hill said the term rate of 1.57% may be more expensive outlet for the primary dealers rather than just rolling the overnight facility at 1.55%. “If dealers think they can still fund at the lower rate through Jan. 2, that would be the more cost effective funding strategy,” he said.

The Fed also conducted an overnight repo operation Thursday with a limit of $120 billion. As with the most recent of these actions, it was undersubscribed, attracting just $26.3 billion of bids. That’s the lowest since Sept. 27, New York Fed data show.