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U.S. repo rate rises ahead of Fed repo operation

Kitco News

NEW YORK (Reuters) - The interest rate on U.S. overnight repurchase agreements climbed early Friday in advance of an operation conducted by the New York Federal Reserve which may add up to $75 billion in temporary cash in the U.S. banking system.

The overnight repurchase agreement (repo) rate was last USONRP= quoted at 1.90%-2.00%, compared with 1.75% late on Thursday, according to Refinitiv data.

The U.S. central bank has conducted a series of cash-adding moves since Tuesday as repo and other money market rates soared to levels not seen since the height of the global financial crisis in 2008.

Analysts had blamed the ruction in the $2.2 trillion repo market, where banks and Wall Street dealers borrow using mostly Treasuries as collateral, on huge payments for taxes and on bond supply. The cash outflows also exposed the scarcity of reserves in the financial system, they said.

The Fed’s upcoming repo operation, its fourth this week, will be held from 8:15 a.m. to 8:30 a.m. (1215-1230 GMT).

The Fed’s willingness to provide more liquidity on Friday is “suggesting that the funding tightness evident in the U.S. markets earlier this week has not dissipated,” Scotiabank strategists Shaun Osborne and Juan Manuel Herrera wrote in a research note.

Reporting by Richard Leong; Editing by Nick Zieminski

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