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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: John Vosilla who wrote (87530)10/10/2007 2:03:52 PM
From: bkcraun  Read Replies (1) of 110194
 
UPDATE: Fed Injects Large Repo, Fed Funds Stay Above Target
- Dow Jones News
(Updates with quote and further details)
NEW YORK (Dow Jones)--The Federal Reserve injected a very large $16 billion into the financial system Wednesday morning, as the central bank battled to get the federal funds rate back to its target level.
The Fed carried out a $16 billion overnight repurchase agreement, or repo. That was much larger than the $5 billion baseline estimate of Wrightson ICAP.
"The very large RPs of the past two sessions are the result of the Fed's decision to undersupply reserves last week," said Wrightson analysts said on the company's Web site. "Short-term efforts to prevent softness in overnight rates before the weekend have led to imbalances in the other direction in the final two days of the maintenance period."
In total, there was $59.25 billion submitted. Of the $16 billion accepted, $11.5 billion of it was in tranche two, which are loans made against collateral including Treasurys and agency debt.
There was also $2.1 billion in Treasurys collateral accepted and $2.4 billion in tranche three, which includes Treasurys, agencies and mortgage backed securities.
The repo operation comes with the fed funds rate consistently above the 4.75% target in recent days, with the effective funds rate closing at 4.91% Tuesday.
So far, the injection has not managed to push the funds rate lower. It was at 4.875% around 11:24 a.m. EDT (1524 GMT), unchanged from its level at the start of New York trading.
The Fed's effort to force down the funds rate comes at the end of the maintenance period - the two-week span during which banks must keep their average reserve levels at the legally required levels.
The higher funds rate suggests banks may be struggling to meet the required reserves levels, forcing the Fed to inject more liquidity.

-By Laurence Norman, Dow Jones Newswires; 201-938-2096; laurence.norman@dowjones.com
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