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15 December 2019

Fed plans further term repo actions to mitigate year-end turmoil

The Fed has been conducting repo offerings and Treasury-bill purchases in a bid to keep control of short-term interest rates and bolster bank reserves.

Bloomberg/Andrew Harrer

The Federal Reserve Bank of New York announced plans to conduct repurchase-agreement operations within the second half of December that will span to January 2020, reported Bloomberg.

The regulator will now conduct term operations totalling $365 billion. The 16 December 2019 operation is a 32-day offering with a maximum limit of $50 billion, while the other term actions range from 13 to 15 days with a maximum size of $35 billion, tenors it has used previously.

The central bank also plans to adjust the size of some of its overnight repo operations to provide additional liquidity for the year-end. While the offering size will remain mostly unchanged at $120 billion, it plans to conduct a one-day forward settlement operation of $75 billion on 30 December 2019 that settles on 31 December 2019 and matures on 2 January 2019.

Additionally, the New York Fed will also increase the sizes of the overnight actions to $150 billion on 31 December 2019 and 2 January 2020.

While the Fed’s repo offerings and Treasury-bill purchases have calmed markets since the September 2019 spike that took overnight repo rates as high as 10 per cent, concerns about the year-end period remain and participants have been flocking to Fed term offerings that will carry them through to January 2020.


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