FED Does $200 Billion REPO

The Fed did giant repo’s today as banks are no doubt struggling for liquidity.

They did $103 billion in 1 day, $45 billion in 14 days and $50 billion in 25 days.

Unfortunately in this situation they should NOT have turned down $74 billion in repo requests–we are on the verge of a liquidity collapse in the bond market–you can see it in the rates–they have been stable or slightly higher–there are liquidity strapped sellers in all of the bond markets.

The FED screwed up when stocks were moving higher for years by not raising interest rates–and now they are screwing up when stocks are moving lower. If they let us fall into a liquidity crisis we are going to see stock prices plunge like we only saw in 1987.

16 thoughts on “FED Does $200 Billion REPO”

  1. So the 1.5 trillion the fed is proposing is buying treasuries on the open market? Does this mean that there is not enough cash and too many treasuries?

  2. I had said a couple days ago headed to a freeze in bonds same as last time, panicked sellers and scared to buy.
    Not a time to be be buying just window shop.

  3. So many things to buy but vol is to the moon. So bought VKQ for 11.08 and PMM for 6.60. Tax free yield ~ 5.5%

  4. Tim,

    Did you understand this from CNBC? Are they buying corporates? What is coupon-bearing securities that they are referring to? Market wanted this late last year according to what was published

    “Under the new regime, the Fed will extend its purchases “across a range of maturities” to include bills, notes, Treasury Inflation-Protected Securities and other instruments. The central bank will begin purchasing coupon-bearing securities, something market participants have been clamoring for since late 2019.

    The purchases start Thursday and will continue through April 13.”

      1. Apparently they cannot by law buy ETF’s or corporates as per Bloomberg right now. They can buy muni’s

  5. Tim, There were spot liquidity interruptions by warehouse lines for mortgage companies over the last 48 hours. This was one of the key triggers of collapse in 2008 and put well-established companies that had operated for decades out of business in two to three days. I know you know but for those that don’t: at its worst, this translates to a freeze in mortgage funding. At least one major national lender has now been de facto out of the market for over 24 hours. That’s a (very) big deal if not corrected quickly.

    1. alpha8—as you probably know I am a residential appraiser and buried to my eyeballs. Have not heard anything out of my lenders today–but no new orders either (have gotten 40 orders the last 8 days)–let’s watch this situation.

      1. Tim, No locks yesterday or today. The stress has increased overnight. Another mega lender is now tapping the brakes. The liquidity issue is appearing on Main Street.

  6. 09:49 *(US) New York Fed announces new $1.5T in Treasury reserve management purchases and repurchase operations to address “highly unusual disruptions” in Treasury financing markets associated with the coronavirus outbreak; to offer $500B in 3-mo repo today, and two $500B repos tomorrow; will continue $1T in repos purchases each week for the rest of the monthly schedule; expands repo purchases beyond bills to a ‘range of maturities’ The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has released a new monthly schedule of Treasury securities operations and has updated the current monthly schedule of repurchase agreement (repo) operations. Pursuant to instruction from the Chair in consultation with the FOMC, adjustments have been made to these schedules to address temporary disruptions in Treasury financing markets. The Treasury securities operation schedule includes a change in the maturity composition of purchases to support functioning in the market for U.S. Treasury securities. Term repo operations in large size have been added to enhance functioning of secured U.S. dollar funding markets.As a part of its $60 billion reserve management purchases for the monthly period beginning March 13, 2020 and continuing through April 13, 2020, the Desk will conduct purchases across a range of maturities to roughly match the maturity composition of Treasury securities outstanding. Specifically, the Desk plans to distribute reserve management purchases across eleven sectors, including nominal coupons, bills, Treasury Inflation-Protected Securities, and Floating Rate Notes. The distribution of purchases across sectors will be the same distribution as the Desk uses to reinvest principal payments from the Federal Reserve’s holdings of agency debt and agency MBS in Treasury securities. The first such purchases will begin tomorrow, March 13, 2020.Today, March 12, 2020, the Desk will offer $500 billion in a three-month repo operation at 1:30 pm ET that will settle on March 13, 2020. Tomorrow, the Desk will further offer $500 billion in a three-month repo operation and $500 billion in a one-month repo operation for same day settlement. Three-month and one-month repo operations for $500 billion will be offered on a weekly basis for the remainder of the monthly schedule. The Desk will continue to offer at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period.

    These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak. Reserve management purchases into the second quarter will continue to be conducted with this maturity allocation. The terms of operations will be adjusted as needed to foster smooth Treasury market functioning and efficient and effective policy implementation.

  7. Here’s another no brainer for my new found friends. “SCHW+D”. Trading a smidgen under par.

    1. REPO is same IMHO as QE. Neither works. Gridbird is correct as opined by some in CNBC pundits or former or current Fed members, “Mark the Market” on all trashed assets, especially energy related, should work as it did in the days of Ben Bernanke. That was exactly we made the toxic assets not so smelly.

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