The Federal Reserve announced a series of overnight and term operations for the next three weeks, signaling that it has control over this vital corner of the financial markets.
The New York Fed said it will conduct overnight repurchase agreement operations daily Monday through Friday until Oct. 10. The Sept. 23 operation will be for as much as $75 billion, while the actions thereafter will be for at least that amount. Separately, it will also conduct three 14-day term operations for an aggregate amount of at least $30 billion on Sept. 24, Sept. 26 and sept. 27, according to a statement.
“The Fed just reminded the market that they have complete control over the front-end if and when they want it,” said BMO Capital Markets strategist Jon Hill. “Given the volatility we saw this week, they want to ensure quarter-end goes as smoothly as possible.”
There were immediate signs of easing concerns after a tumultuous week in which funding costs spiked to record levels. Swap spreads widened, showing that worries over dealers’ financing costs were ebbing.
“This is a more concerted effort to ensure confidence in the market that the Fed will do what is necessary to quell serious volatility in the repo market and consequently the policy rate,” said Jonathan Cohn, strategist at Credit Suisse. “The market reaction shows it has had a significant positive reaction, with the sharp widening of the two-year swap spread.”
