The Federal Reserve Bank of New York executed a $45.55 billion weekend liquidity operation Friday, which resulted in led overall temporary central bank liquidity to tick lower.
The Fed added the money to financial markets via what’s called a repurchase agreement operation, or repo, that expires on Monday. It took in $28.2 billion in Treasurys, $1 billion in agencies and $16.35 billion in mortgage bonds from eligible banks, known as primary dealers.
With $48.78 billion in outstanding repos maturing Friday, overall temporary liquidity provided by the Fed via repo transactions ebbed $3.2 billion to $170.5 billion.
Fed repo interventions take in Treasurys, agency and mortgage bonds from the dealers, in what is effectively a short-term loan of central-bank cash, collateralized by the bonds. Primary dealers are limited in the amount of liquidity they can take in exchange for their securities, and they pay interest to the central bank to get the funds.
The Repo Market, Explained
The repo market shook the financial world in September when an unexpected rate spike choked short-term lending, spurring the Federal Reserve to intervene. WSJ explains how this critical, but murky part of the financial system works, and why some banks say the crunch could have been prevented. Illustration: Jacob Reynolds for The Wall Street Journal
Fed money-market interventions are aimed at keeping the federal-funds rate within the central bank’s 1.5%-to-1.75% target range. The interventions also limit but not eliminate the volatility in other money-market rates. The Fed controls the fed-funds rate to influence the overall cost of borrowing in the U.S. economy as part of its efforts to achieve the job and inflation goals set for it by Congress.