NY Fed is adjusting minimum bid rate and timing of repo operations citing improvements in US dollar funding market conditions

The New York Federal Reserve has stated that the desk is adjusting minimum bid rate and timing of repo operations given substantial improvements in US dollar funding market conditions. 

Statement Regarding Repurchase Operations

The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has released the schedule of large-scale overnight and term repurchase agreement (repo) operations for the monthly period from June 12, 2020 through July 13, 2020. 

The Desk is adjusting the minimum bid rate and timing of repo operations given the substantial improvements in U.S. dollar funding market conditions.  Beginning June 16, 2020, the Desk will set the minimum bid rate on overnight and one-month term repo operations equal to the rate of interest on excess reserves (IOER) on the day of the operation plus an additional spread of five and ten basis points, respectively.  In addition, beginning June 22, 2020, the Desk plans to shift daily overnight repo operations to the afternoon.

Beginning with this month’s release, the Desk will no longer publish daily updates with the next business day’s operational details.  Detailed information on the schedule and parameters of term and overnight repo operations can be found on the Repurchase Agreement Operational Details and Repurchase Agreement Frequently Asked Questions pages.

The Desk will continue to adjust repo operations as appropriate to support effective policy implementation and the smooth functioning of short-term U.S. dollar funding markets, consistent with the FOMC directive to the Desk.

  

Market implications

The shortage of dollars offshore meant that the market maker orders for swaps were squeezed through a bottleneck which forced the greenback higher at the start of the crisis.

This resulted in a collaboration of central banks around the world to agree on unprecedented measures designed to free up supply liquidity in the US dollar swap lines which eventually brought some calm to markets and eventually pressured the greenback.

The latest news is, therefore, a further weight and capping the greenback that has otherwise been enjoying a bought of risk-off demand since the bearishness of the Federal Reserve's presser yesterday.

At the time of writing, DXY trades 0.73% higher on the day at 96.76.