Fed overnight repo operations for October 4 offered $75 billion in 1-day repurchase agreements to Primary Dealers. The dealers took $38.55 billion at an interest rate of 1.8%, to fund the carry of their securities holdings, or to use for whatever purpose they chose.
The previous operation had totaled $33.5 billion. Therefore this was an increase of $5.0 billion in the amount of overnight repos outstanding, indicating a slight, nonmaterial tightening of market conditions.
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In addition, there are currently three 14 day repos outstanding totaling $139 billon. The first of these, totaling $60 billion will expire on Tuesday, August 8. The other two operations will expire on October 10 and 11.
The total amount currently oustanding including both term and overnight repos is $177.5 billion.
The Fed has scheduled additional operations in open ended amounts to roll over all currently outstanding overnight and term repos through November 4. Upper limits of these operations are NOT SPECIFIED!
Therefore, these operations effectively begin, but do not yet make official, the much discussed Standing Repo Facility.
The Primary Dealers can now borrow whatever they want from the Fed, for whatever purpose they want.
This is insane. Bears, beware!
Fed Overnight Repo Operations are Stealth QE
I have warned that this is stealth QE. I have warned that because of the need to fund an endless flow of new Treasury supply, this new QE will be permanent. That is regardless of whether the Fed makes it a matter of official policy.
It is also regardless of whether the Fed continues these repos, which fall under Temporary Open Market Operations (TOMO), or expands Permanent Open Market Operations (POMO), in an official return to QE.
In either case this is the new QE.
You can follow the full story, its implications for the financial markets, and trading and investment strategy recommendations at Liquidity Trader.
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