Fed to inject up to $150 bln in repo for critical year-end

New York (Dec 31) - The Federal Reserve will inject as much as $150 billion into the overnight repurchase agreement market on Tuesday in its final operation for 2019. in a bid to offset a scramble for funds over the crucial year-end period.

Banks and investors borrow in the repo market to finance asset purchases and other business expenses, but the availability of loans over year-end can dry up as banks pare back risk taking.

The overnight repo rate jumped to 1.90% on Tuesday, from 1.50% late on Monday, though the cost of borrowing was far lower than previously predicted.

Forward repo markets were pricing overnight loans for year-end at 2.50% early on Monday and at around 4% a few weeks ago, according to analysts.

The New York Federal Reserve has been injecting liquidity into the repo market to reduce the chance of funding stress after a flare-up in September sent the cost of overnight loans as high as 10%, more than four times the Fed’s rate at the time. That has caused particular concern about the year end.

The Fed saw solid demand for loans on Monday in three liquidity operations, though banks took only a small portion of the funds on offer.

KitcoNews