Fed Again Announces Extra $500BN Repo To Stabilize Funding Markets

Earlier this morning, when discussing the latest Fed repo injections, which at $189BN between overnight and term repos, seemed insufficient to ease the stress in the repo market where GC repo jumped by 40bps to 60bps this morning…

we said that “with no other repos scheduled for today, and the next $500BN 84-day facility not due until Friday, banks may soon find themselves in another funding panic, and the Fed may respond as it did yesterday, with an ad hoc $500BN facility later in the day if funding conditions refuse to ease.”

Alas, funding conditions have indeed refused to ease, with the BBDXY surging to new session highs perhaps awaiting the Fed to validate earlier reports that a Fed Commercial Paper facility is imminent, and moments ago – just as we expected – the Fed, which is now literally flying blind and making up liquidity injections on the fly, the New York Fed announced that it would conduct an additional overnight repo operation for same-day settlement today from 1:30 PM ET to 1:45 PM ET. And, as yesterday’s ad hoc operation, this repo operation will be conducted for up to an aggregate offered amount of $500 billion with a minimum bid rate of 0.10 percent.

And, as yesterday, the Fed explained that this action “is taken to ensure that the supply of reserves remains ample and to support the smooth functioning of short-term U.S. dollar funding markets.”

The problem for the Fed is that these actions have done virtually nothing to facilitate the “smooth functioning of short-term U.S. dollar funding markets”, and the longer the Fed delays in unveiling just what can fix these markets, the greater the dollar shortage will be.