New York Fed Does Massive REPO Operation-Corrected

Many of you have been aware this was coming today–and it has been executed.

The New York Fed, who operates the Federal Reserves open market desk, has executed a massive REPO (repurchase) operation this morning.

They have done a $89 billion 1 day and a $45 billion 14 day REPO— $134 billion in total.

As we have mentioned before there is more going on than meets the eye–not that we know what it is, but with the Fed balance sheet up $207 billion in the last couple of months and now larger and larger REPO operations being executed we can only surmise that the huge treasury issuance of notes is larger than the market can bear.

If this continues this will not end well–we only wish we had a crystal ball to tell us when the merry go round was going to stop.

The REPO operations can be seen here.

21 thoughts on “New York Fed Does Massive REPO Operation-Corrected”

    1. The Thursday term repo saw dealers submit $62.15 billion in securities and the Fed take in $45 billion in Treasurys, agency and mortgage securities. The overnight operation was also well bid, with dealers offering and the Fed taking $89.154 billion in securities. The Thursday overnight repo operation was much bigger than the one-day operation Wednesday, where the Fed added $49.845 billion in one-day liquidity.

  1. Do you guys think there could an upcoming issue with liquidity in money market funds?

  2. If I may channel my favorite philosopher, Yogi Berra, you can observe a lot by just watching. I too have noticed how so many of the frequent commenters on this site continue to mention that they are selling securities and raising cash. Today’s story about the NY Fed and its repo transactions, will only add to the anxiety level many of us are feeling. Since I consider myself part of the “dumb money” crowd, I have decided to follow the “smart money” and start raising cash as well. I just want to know: which one of you guys is in charge of ringing the bell at the top?

  3. The primary dealers are obligated to buy at the Treasury auctions. They turn around and re auction the securities they are forced to buy to real investors. Except that there aren’t enough of them. So the primary dealers are holding treasuries they don’t want to hold. Liquidity is gone from the markets. In steps the Fed to the rescue (again).

    How does this end? One way is for the Treasury to stop selling so many securities, but that requires the Federal Government to spend less. Ain’t gonna happen.

    Another way if for interest rates to rise, to rates that clear the markets. The entire reason for the fed intervention on this occasion was to prevent that. The Fed doesn’t want to see short term rates at 3-4-5%.

    Another is for the Fed to just keep buying the “excess” treasury securities, reflating its balance sheet.

    This is not a stable situation to say the least.

    1. Bob-in-DE, thanks for your post. I try my best to never miss any of your posts. Thank you!

  4. Reading with interest about the number of folks here increasing their cash piles while I’m currently at annual cash lows in my investment accounts. Reminds me of that sage advice from my mentor, Alfred E. Nueman…What me worry?

    1. SteveA–“this is not QE”–per Fed chair Powell. That is pretty funny–which century are they going to let assets ‘run off’. With massive, and growing, treasury auctions, who is going to be the buyer of this debt–in the end it is the FED (not directly as they can’t buy directly from the treasury).

  5. They better figure it out before the s**t hits the fan in the next recession. Thanks Tim for your work here, ATB.

    1. rb–yes–one day the REPO doesn’t happen as the FED sends a message to congress that never ending huge deficit spending is not acceptable–interest rates spike 1/2% in one day–or simply a treasury auction fails because the primary dealers have no confidence they can REPO securities to maintain liquidity. Markets of all type tank big time–not a little bit–a massive amount.

      1. Tim—I doubt the Fed will “send a message to Congress” because Congress really has no practical control over deficit spending. It ain’t gonna change not only for political reasons, but also because the the die has been cast. The Fed is the tail and deficit spending is the dog.

        I agree with you that eventually the credit markets will tank big time. The question is when, but the Fed will do everything within its power to delay that happening.

        1. randy–not really believing that the Fed would send a message–but with the ‘die cast’ on the spending side of the equation there is always the revenue side—and you have to know this is going to happen sooner or later.

      2. Next week the fed will lower rates, but if they signal their done on a mid-cycle adjustment look out below. I’m not selling many preferreds but I did buy a little sds today. A low risk hedge against the ATH’s.

  6. Either you run the day or the day runs you.” ~ Jim Rohn

    It’s easy for the day, market informational movements and volatility to get away from you if you let it, which is why it’s important to take control of the day and bend it to your will. There will always be distractions and things getting in the way of what you have planned to accomplish your goals, so you have to make sure that what you want to get done in your portfolio takes priority. Get into the habit of letting news of the day run you and you will stack many market days up that don’t go your way. Have a clear plan for what you want to accomplish for your life and portfolio and make sure that you stick to that plan.
    Wishing you well my friends, Nomad

    1. !Jim Rohn! Wow and name and voice that still rings in my mind. Nice how the old brain cells can pull it right out decades later. When I needed mentors they showed up, but I was looking and followed a good lot of their attitudes/advice. May we find a way to ripple that out!

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