The Fed’s repo operations were supposed to address liquidity concerns for the end of the year/quarter. But on Monday the Fed conducted $100 billion in repo operations. On Tuesday it was $63.9 billion. Wednesday? $46 billionL
In Monday’s action, $63.9 billion was accessed from the overnight facility. But $35 billion was accessed from a 14-day security. This is yet another sign that overnight lending markets between banks aren’t functioning as normally as the Fed would have you believe.
Is repo now a permanent part of the Fed’s playbook to support credit and stock markets? Barron’s wrote about this on the weekend. One thing to watch for: the use of mortgage backed securities (MBS) as collateral, rather than US Treasuries. Think of the repo facility as a pawn shop. You bring the best stuff in first (Treasuries) because you get the best price. It’s the highest quality collateral for a loan. But when times are desperate, you’ll bring any old thing, including MBS.