INSUBCONTINENT EXCLUSIVE:
for the first time since regular operations began last year.
The lack of bids suggests that liquidity has improved in the market for
short-term borrowing of government securities as the Fed has pumped in trillions of dollars to stabilize a market essential to the smooth
functioning of the financial system as the coronavirus outbreak ravages the US economy.
For the overnight repo operation, only $6.75 billion
out of a possible $500 billion were submitted and accepted.
The New York Fed has been intervening in money markets since mid-September, when
a shortage of cash led to a spike in short-term borrowing costs
Policymakers initially planned to scale back those offerings this year, but they pivoted to offering vast amounts of liquidity to keep
markets functioning smoothly after investors became more concerned about the coronavirus outbreak.
The Fed now offers up to $1 trillion in
overnight repo support daily, along with several longer-term operations, but dealers are taking only a fraction of the available cash
Borrowing costs have also remained low after the central bank slashed interest rates to near zero, suggesting there is not a shortage of
liquidity.
However, the low demand could also be due to other drastic measures the Fed has taken to keep credit flowing through markets at a
time when spooked investors are fleeing to safety
balance sheet surged to a record $5.3 trillion after growing by more than half a trillion in a week, according to data released Thursday
The Fed committed to open-ended bond purchases to ensure that markets are functioning smoothly, a move that provides more liquidity in the
banking system and could lessen the need for support from the repo market.
Over the past several weeks, policymakers also ripped open their
crisis era playbook to revive old tools and create new programs to support corporate borrowing, municipal loans and other credit markets
The Fed will soon announce the details for a new Main Street lending facility to support small businesses, a program some entrepreneurs say
is needed quickly to avoid a repeat of the last financial crisis