Repo Madness Heads Into Day 4: Another $75 Billion Liquidity Drop from NY Fed Coming Friday

The short-term funding market has still not recovered from its seizure at the start of the week–at least not enough to be taken off central bank life support.

The Federal Reserve Bank of New York announced Thursday afternoon that it would once again intervene in the repo market on Friday morning, its fourth consecutive day of supplying tens of billions of dollars to hold down interest rates in the short term funding market.

The NY Fed said it would purchase up to $75 billion of debt between 8:15 a.m. and 8:30 a.m. Securities eligible to be sold to the Fed include Treasuries, government-sponsored agency mortgage-backed securities, and debt issued by Fannie Mae and Freddie Mac.

The Fed has been intervening in the repo market, which provides short-term funding vital to the largest Wall Street banks, ever since interest rates spiked on Monday. The cause of the interest rate spike remains a matter of speculation. The most popular theory on Wall Street is that the Fed’s earlier balance sheet reduction has left the market with too few dollars relative to Treasuries held by financial institutions.

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