Oversubscribed Fed Repo Operation Shows Year-End Cash Hunger

(Bloomberg) -- Money-market participants wary of year-end funding pressures are taking advantage of cash being offered by the Federal Reserve to carry them through the rest of 2019, with the central bank's term repurchase-agreement operation oversubscribed once again on Monday.

The Federal Reserve Bank of New York's 42-day term repo operation attracted $42.55 billion in bids, more than the $25 billion on offer. This action, with a maturity of Jan. 13, 2020, was the second of three operations to provide funding past the year-end period.

The maximum size of the Dec. 2 term operation was increased last week to $25 billion from its initial amount of at least $15 billion after the central bank's first year-end offering was oversubscribed. Market participants had submitted $49.05 billion in bids for the 42-day term action on Nov. 25, which was more than the $25 billion available.

“The fact that it is oversubscribed suggests there's a true need,” said Priya Misra, head of global interest rates strategy at TD Securities: “The hope is the next time the Fed announces the next schedule, the term operations will be larger.”

The third action to provide year-end funding is scheduled to take place on Dec. 9. The Fed is currently slated to offer at least $15 billion of 28-day cash, although Misra reckons they could choose to increase the volume.

“They don't want to become the repo market, but they're clearly very flexible and the intent is clear that they will do whatever it takes so the plumbing doesn't seize up,” the strategist said.

The Fed's overnight repo operation, as has been the case with most such actions recently, was undersubscribed on Monday. It attracted $72.9 billion of bids, less than the maximum offering size of $120 billion.

To contact the reporter on this story: Alexandra Harris in New York at aharris48@bloomberg.net

To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net, Benjamin Purvis

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