Fed Does Huge Repo Operation

The FED was in the market yesterday for $53 billion in a overnight operation–then today they came in for $100 billion in 1 day overnight repo–not sure I remember a $100 billion repo in the past–most have been in the $40-$50 billion range lately as the Fed tried to cut back on the ‘punch’.

Even this huge liquidity operation was $9 billion short of what banks were asking for–they submitted $109 billion in liquidity requests.

I don’t fully understand all of the ins and outs of this marketplace–but anytime something out of the ordinary happens it should be noted–obviously someone needs some liquidity.

You can see repo operations here.

I should add that banks requested $70 billion in 14 day borrowings–but the FED only gave them $20 billion—wierd.

13 thoughts on “Fed Does Huge Repo Operation”

  1. Can someone tell me what I’m missing here. I looked up PUK+A and also PUK-. Both trading up at around $26.25 or so BUT both have been callable now for many years. So 2 questions, WHY have they not called these 6%+ issues and two why would anyone of rational and logical thinking buy them at $26.25 when you could literally overnight lose your ass?????

  2. Money printing, debt power of Congress and their authorization of the Fed to sink their printing so that more printing can be done? Getting pretty desperate. I am certain there will be no unintended consequences.
    “May you live through interesting times.”

  3. I just posted on Holy Moly something that might explain the Fed doing a 100 billion repo.
    If I read the Heisenberg’s article correctly, its institutions wanting to swap their bonds for dollars that caused the Feds to lay out the 100 billion. and if true its only the start.

    1. Yes Charles M–the treasury is selling vast quantities of bills and bonds to the Primary Dealers–they then are short on cash and turn around and hand them off to the Fed to get some liquidity back when they need it. Really is a vicious circle that likely will never end.

      1. Correct. With low Treasury yields nobody really wants for return on capital and epic deficits there is no choice except to monetize the debt.

        This might not end well.

        Buy gold?

  4. The Fed has other bullets (reserve requirements for example) but none of them will provide much assistance in the short term. No point in making it easier for banks to lend, if no one is borrowing. Monetary policy action is pretty much done. The next area is fiscal policy, which will require both political parties to join together and pass legislation to cut income taxes for some specified period of time. This will provide immediate new cash flow into the consumers’ hands to jolt the economy—remember that consumer spending makes up 70% of GDP.

    I think this issue will be very prominent in the Presidential election. Trump will attempt to blame the Democrats for the recession by failing to pass tax cut legislation. The Dems are between a rock and a hard place. I suspect they will drag their heels, while negotiating with the GOP over legislation, so that it is effectively delayed and becomes a non factor. Both sides will be working overtime with the media to get across their point of view/blame. Just grist for the mill I guess.

    1. The previous tax cuts did not seem to work so not sure how any more will. Most of it went to corporations who used it to increase executive salaries and compensation packages and buy back stock. Not much made it down the average consumer and, hence, nothing to jolt the economy except for a very temporary novelty effect.

      In fact, while the big boys got significant cuts and the lower incomes brackets got some crumbs, my family, being in the upper portion of the middle class have paid MORE in taxes the past two years. Roughly to the tune of $2500-$3000/year. So I helped pay for the big boys to buy another mountain chateau while I had to cut back in some charity contributions. Grist for the mill indeed.

      The Fed has painted itself into a corner and this will get very interesting going forward I think.

  5. Tim, Especially noting the market’s reaction to today’s IR cut, I don’t think it’s a stretch here to suggest the fed is de facto out of bullets and short on credibility.

    Also that the Fed has been marginalized to a Treasury-debt monetizer. With no end in sight.

    1. Alpha8–the Fed lost credibility in my eyes when 3-5 years ago, when presented with reasonably good GDP growth they decided to not begin raising interest rates when they had a chance. There after they caved to every tantrum the equity market threw. Then they start NOT QE 4. Lastly we cut rates by a full 1/2 point fully knowing it will be of no help at all.

      1. CNBC pundits liked the rate cut and they are also happy that Bernie Sanders have been trumped by Joe Biden. Hence, Anthem and United Healthcare up ~ 10% plus fairly big gains for big pharma. Punch is out. Short term okay. Risks are no doubt exacerbated going forward. The next recession could be deep. Seems like the talking heads want the stock market to go up at any cost.

  6. They still need to buy bills to get 3mo. Below 2 yr. if the fed did not move quickly like they did we would be down close to 10% on the Spx imho.

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