The Fed drained $4.25 billion from the market on Tuesday, issuing $9.5 billion in overnight repos against $13.75 billion in expirations. Benny and the boys continue to be tight in the short run. Click here to download complete report in pdf format (Professional Edition Subscribers).
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What are your thoughts on target rates for these REPO’s being higher than 5.25% for the last few days? I’ve been digging and the new issues are getting bid above the target 5.25% rate for several days in a row now. What gives?
I don’t think it means much. End of maintenance period, end of month, end of quarter pressures. The Fed lets the funds rate float a few points around the target.
I’m more interested in the effects of the quantity of liquidity in the market. What’s interesting is that in order to maintain the overnight rate anywhere near the Fed Funds target, the Fed has had to drain, even when the Treasury is adding to the pressure with these huge CMBs. It suggests there’s some slack in the system. But I really don’t know. In the big picture it’s just a minuscule blip.
Some variance in the Funds rate and the repo auction rates is perfectly normal.
http://www.ny.frb.org/markets/omo/dmm/fedfundsdata.cfm