Markets Get Ready for Risk-Free Fed Arbitrage Trade to Expire
- Bank funding facility established as ‘emergency program’: Barr
- Use reached record $141 billion, according to latest Fed data
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An alluring risk-free arbitrage opportunity is set to end after the Federal Reserve’s top bank watchdog signaled that the central bank is unlikely to renew a key lending facility created during last year’s banking crisis.
The Bank Term Funding Program, which supported lenders through that tumult, “really was established as an emergency program,” said Michael Barr, the Fed’s vice chair for supervision, at an event Tuesday. The BTFP, which is slated to expire March 11, has attracted a swath of users in recent weeks as traders look to lock in loans at a rate that’s more attractive than the alternatives.