October 16, 2019 / 3:34 PM / a month ago

UPDATE 1-NY Fed accepts $75 bln in repo bids as overnight rate rises above 2%

(Adds details, comment)

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 16 (Reuters) - The New York Federal Reserve on Wednesday accepted the maximum$75 billion in bids from primary dealers at a repurchase agreement (repo) operation, in efforts to help maintain the federal funds rate within the target range.

Total bids submitted by primary dealers reached $80.35 billion.

Wednesday’s amount was larger than the $67.6 billion in overnight repos the regional central bank awarded on Tuesday, the NY Fed website showed.

The U.S. overnight repo rate was between 2.12%-2.18% before NY Fed operation, slightly lower than the 2.3% hit on Tuesday. Tuesday’s overnight rate was the highest since mid-September.

Analysts noted that Tuesday’s overnight rate rose despite an undersubscribed repo operation.

There’s no clear reason for Tuesday’s squeeze, analysts said, but Jim Vogel, senior rates strategist, at FTN Financial in Memphis, Tennessee, said this could be related to the settlement of U.S Treasury auctions held last week.

“There’s a big settlement date middle of the month. And there are very few Treasury coupons and cash interest payments that’s coming due at the same time,” said Vogel.

“So the people have to pick up the auctions have to pick them up in fairly large sizes and that creates a quick cash strain,” he added.

The central bank said last week it would continue to inject cash into overnight lending markets until January by offering daily operations in the market for repurchase agreements, or repos.

That’s on top of the the $60 billion in monthly purchases of Treasury bills, a move meant to wean money markets off of the daily operations by bringing reserves to a level that accommodates economic growth but is also enough to absorb any spikes in demand. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Toby Chopra and Chizu Nomiyama)

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