Fed Takes $42BN In Second October Repo As Funding Pressures Ease

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Fed Takes $42BN In Second October Repo As Funding Pressures Ease

One day after the Fed raised eyebrows when it accepted $55BN in collateral in its first repo operation after the notorious quarter-end liquidity crunch, an amount that was just higher than the first repo op the Fed concluded in mid-September after a 10+ year hiatus ($53.2BN) and which some saw as too high for a new month with $139BN still locked up in 2-week term repos, moments ago the Fed concluded the second overnight repo operation for October, one which confirmed that the recent repo turmoil appears to again be easing, as $42.05BN in collateral was submitted (and accepted) in the $75BN operation, a $13BN decline from the $54.85BN repoed yesterday.

Fed Takes BN In Second October Repo As Funding Pressures Ease

The composition of the repo showed that while Treasury collateral declined from $50BN to $35BN, MBS actually increased modestly from $4.75BN to $7.05BN, with no Agency use again.

Fed Takes BN In Second October Repo As Funding Pressures Ease

While the drop in total repo use was certainly an improvement from yesterday’s operation, the continued demand for reserves, even with $139BN in liquidity locked up in 2-week term repo which expire in the second week of October, suggests that the funding shortage is anything but a calendar event, and confirms that there is an acute reserve shortage, one which the Fed will have to address, most likely by resuming POMO operations to the tune of roughly $20BN per month… which for all the QE denialists, will be the same size as QE1.


Tyler Durden

Wed, 10/02/2019 – 08:53

Fed Takes BN In Second October Repo As Funding Pressures Ease

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