The Federal Reserve is trying to get ahead of possible funding disruptions caused by the coronavirus, ramping up cash injections in the coming weeks to as much as $505 billion in a bid to keep short-term financing markets functioning smoothly through quarter-end.
The central bank’s New York branch said Wednesday that it would conduct additional repurchase-agreement operations that could take its support for this crucial corner of the financial markets beyond the total of $490 billion it
The Fed’s announcement covers operations starting Thursday, and comes as stocks are plummeting on concern about the damage to the economy from the viral outbreak, which the World Health Organization is now calling a pandemic. Turbulence in Treasuries, where yields sank to record lows this week, may have played into the Fed’s approach. Volatility in spreads between the cheapest-to-deliver Treasury securities and their associated futures contracts appeared to draw a response from regulators, analysts said.
Read more:
“The market moves have been so violent and disturbing,” said Jefferies money-market economist
On Monday, the New York Fed unexpectedly increased the size of this week’s repo offerings to $150 billion for the overnight action and $45 billion for the term as financial markets convulsed, up from $100 billion and $20 billion, respectively.
The Fed
The Fed has been conducting repo offerings and Treasury-bill purchases in a bid to keep control of short-term rates and bolster bank reserves. The efforts have calmed markets since September, when overnight repo rates soared as high as 10%, and also helped quell concern about a potential cash crunch at the end of 2019.
The overnight rate was around 1.21% Wednesday afternoon, within the Fed’s target range of 1% to 1.25%.
