Fed to Widen Treasury Buying, Expand Repo to Ease Market Strain
Comment of the Day

March 12 2020

Commentary by Eoin Treacy

Fed to Widen Treasury Buying, Expand Repo to Ease Market Strain

This article by Matthew Boesler for Bloomberg may be of interest to subscribers. Here is a section:

U.S. stocks trimmed staggering losses of more than 8% earlier in the day as investors absorbed the Fed’s muscular decision.

The buying will include coupon-bearing notes and match the maturity composition of the Treasury market, it said. Ten-year U.S. Treasury yields fell sharply to trade around 0.68%.

“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,” the New York Fed said.

Term repo operations in large size have also been added to help markets function, it also said. The New York Fed said it would offer $500 billion in a three-month repo operation at 1:30 p.m. and repeat the exercise tomorrow, along with another $500 billion in a one-month operation, and continue on a weekly basis for the rest of the monthly calendar.

Eoin Treacy's view

The call on the repo market is likely to continue to rise because banks, the world over, are increasingly starved of liquidity. The liquidity shortage that appeared in Q3 was but a foretaste of the difficult environment we are currently presented with and suggests the remedial action to ensure property functioning of the money markets is going to be significantly larger than currently envisioned.

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