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New York Fed Undertakes Small Value Repurchase Agreement Operation

John Galt

Updated: September 2, 2022

repurchase agreement operation
Editor’s Note:

EDITOR'S NOTE: The New York Fed Undertakes Small Value Repurchase Agreement Operation. It’s long been known that the reverse repo market has been spiking. The complexity of the issue, let alone its interpretation, befuddles most investors (and with good reason…its complexity is bewildering). This opens up a space, on one hand, to detect fragilities and other negative indications that most people can’t see; on the other, it opens up a space for so-called “alternative truths.” In his video, Bix Weir sees the shutting of the reverse repo market as a means for further repo activity. The $2 trillion in cash parked at the Fed will return to the banking system, possibly leveraged 10-to-1, as over $20 trillion cash back into the economy. He immediately jumps to a commentary about high energy bills in the UK resulting from a “deep state socialist” agenda (as opposed to the war in Ukraine) as a cause. There may be some truth in all of this, and Bix’s suspicions regarding the repo market may be warranted. Or, perhaps it all boils down to a T-bill squeeze. Banks have too much cash in deposit, exceeding their loans and pushing up regulatory capital requirements. Plus, the government’s spending of funds in its Treasury general account (approaching the the debt ceiling in early 2020) caused more cash to end up with banks, pushing up its regulatory capital requirements even more, So, banks with too much cash in the system began telling their corporate clients to stash money away in money market funds instead. Money markets are all about safety. When investors deposit funds in a money market, those funds, in turn, buy the safest and most short-dated investments on the planet: short-dated US T-bills. By Q1 of 2021, money markets were managing over $2 trillion in deposits. Well, they began running out of T-bills to purchase, and the only entity with the largest amount of T-bills amid its scarcity is the Fed. Hence, the spike in the reverse repo market. If you’ve followed us up to this point, let’s just say that the Fed is now hiking interest rates and easing its treasury purchases. This will upset the equities market, as you already know. So, did the Fed “program” a crash, as Bix Weir claims? Or is it a natural outcome of trying to simplify a predicament of labyrinthine complexity?

The New York Fed undertakes small value open market transactions for the purpose of testing operational readiness to implement existing and potential policy directives from the Federal Open Market Committee (FOMC). The FOMC authorizes the New York Fed's Open Market Trading Desk (the Desk) to conduct these exercises to test its operational readiness in the Authorization for Domestic Open Market Operations and Authorization for Foreign Currency Operations.

In connection with these authorizations, the Desk intends to conduct a small value overnight repo operation with Primary Dealers and Standing Repo Facility counterparties to test its contingency operation infrastructure. The bid submission process will be conducted from 10:30 AM ET to 10:45 AM ET on Thursday, September 8, 2022. Operation results will be posted on the New York Fed’s website following the completion of bid evaluation. All counterparties will be limited to one $1 million proposition per tranche during the operation. The operation details are as follows below:

Repurchase Agreement Operation:

Overnight Repo Primary Dealers
and SRF counterparties,
which include depository institutions
Thu, Sep 8, 2022 Thu, Sep 8, 2022 Fri, Sep 9, 2022 Multi-tranche: Treasury, Agency, Agency MBS At or Above
Sep 8, 2022 Minimum Bid Rate
$100 million

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