Liquidity Shortage Getting Worse: Fed’s Repo Oversubcribed Even More As Funding Demand Jumps

Profile picture for user Tyler Durden

For those hoping that the dollar shortage and overnight funding crunch would ease on the third day after the G/C repo rate exploded as high as 10%, we have bad news: it has not.

As we warned earlier today, when we previewed the result of today’s repo outcome, the only question would be whether the amount of bids submitted into today’s operation would be higher or lower than yesterday’s $80.05BN to get a sense of whether the funding pressure is easing. The answer: with $83.875BN in total bids submitted, not only was the $75BN operation oversubscribed again, but the total liquidity shortfall rose by almost $4 billion compared to Wednesday morning.

Furthermore, the fact that the operation was again oversubscribed means that once again there was one or more participants who did not get up to €9 billion in the critical liquidity they needed, and that the Fed will see a chorus of demands by everyone (because just like with the discount window “stigma”, nobody will dare to be singled out as the party seeking repo funds) to either expand the size of its operations, implement a fixed operation and/or transition to permanent open market operations, i.e. QE, as Powell hinted he may do yesterday.

By comparison this is what yesterday’s repo operation looked like:

Both of these are over 50% greater than the $53.15BN repo operation conducted on Tuesday.

What is immediately notable is that except for agency paper, there was a greater use of Treasury ($51.6N to $56.3BN) collateral, while Mortgage-backed dipped slightly ($27.8BN to $26.15BN). Additionally no agency paper was used as collateral in today’s repo, down from Wednesday’s $0.7BN.

We now await today’s effective fed funds print to see if it will again print above the top of the new fed funds range (2.00%), and whether the overnight repo rate will reverse its earlier drop as it is becomes clear that the funding crisis is nowhere near over.

* * *


As the Fed pre-announced late on Wednesday, moments ago the New York Fed open markets desk started its daily overnight repo operation to provide liquidity to the financial system. It comes as funding markets appear to have settled down overnight, with the overnight general collateral repo rate opening at 2.25% before dropping as low as 1.95%-2.00% according to ICAP, while the SOFT rate dropping sharply from the mid-5% to 2.55%, which however remains quite elevated relative to the new Fed Funds range of 1.75%-2.00%

The market will be looking at the amount of repos tendered to the Fed and whether the operation will again be oversubscribed; as a reminder, on Tuesday the repo received $53BN in bids, which jumped 50% on Wednesday to just over $80BN, while the operation remains capped at $75BN. Should the total notional remain in this ballpark it will suggest that funding stress remains.



The Liberty Beacon Project is now expanding at a near exponential rate, and for this we are grateful and excited! But we must also be practical. For 7 years we have not asked for any donations, and have built this project with our own funds as we grew. We are now experiencing ever increasing growing pains due to the large number of websites and projects we represent. So we have just installed donation buttons on our websites and ask that you consider this when you visit them. Nothing is too small. We thank you for all your support and your considerations … (TLB)


Comment Policy: As a privately owned web site, we reserve the right to remove comments that contain spam, advertising, vulgarity, threats of violence, racism, or personal/abusive attacks on other users. This also applies to trolling, the use of more than one alias, or just intentional mischief. Enforcement of this policy is at the discretion of this websites administrators. Repeat offenders may be blocked or permanently banned without prior warning.


Disclaimer: TLB websites contain copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available to our readers under the provisions of “fair use” in an effort to advance a better understanding of political, health, economic and social issues. The material on this site is distributed without profit to those who have expressed a prior interest in receiving it for research and educational purposes. If you wish to use copyrighted material for purposes other than “fair use” you must request permission from the copyright owner.


Disclaimer: The information and opinions shared are for informational purposes only including, but not limited to, text, graphics, images and other material are not intended as medical advice or instruction. Nothing mentioned is intended to be a substitute for professional medical advice, diagnosis or treatment.

Be the first to comment

Leave a Reply

Your email address will not be published.