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Reuters
6 days ago
- Business
- Reuters
New York Fed to start morning Standing Repo Facility operations next month
May 28 (Reuters) - The Federal Reserve Bank of New York said Wednesday that late next month it will add morning offerings for its liquidity providing Standing Repo Facility. The morning Standing Repo Facility, or SRF, operations will join with existing afternoon operations, and will be available starting June 26. "The additional daily morning SRF operations are intended to further enhance the effectiveness of the SRF in its ability to support the effective implementation of monetary policy and smooth market functioning," the bank said in a statement. The SRF was launched in 2021 in a bid to bolster the central bank's ability to provide liquidity to the financial system. It also helps the Fed keep the federal funds rate, its chief tool for influencing the course of the economy, in line with levels targeted by the rate-setting Federal Open Market Committee. The SRF takes in Treasury and agency securities from eligible firms in exchange for fast cash loans, and essentially makes available on a constant basis liquidity once provided by discretionary Fed repo operations. The tool has essentially gone unused through its lifespan with the exception of modest usage at the end of the third quarter last year, when money markets navigated a short-lived period of stress. Roberto Perli, the New York Fed official responsible for implementing monetary policy for the central bank, had been noting that morning operations would join those offered in the afternoon. "This will be an important step in enhancing the efficacy of the facility," Perli said last Thursday, and a more effective SRF could also allow the Fed to shrink its holdings of bonds by more than would otherwise be the case. He also nudged reluctant financial firms to tap the SRF, saying "I encourage our counterparties to use the SRF when it makes economic sense." The morning SRF availability will kick off on June 26, with the cadence of afternoon operations remaining as they are now. In a statement, the New York Fed said that it will cap total daily SRF operations at $500 billion. The closing time for the morning operations will be 8:30 a.m. ET. Early SRF operations have already been deployed around year and quarter ends, and while they have gone unused, some believe their availability helped bolster market confidence around periods that can be volatile in money markets. The New York Fed's SRF announcement followed closely on the heels of the release of minutes from the Fed's meeting minutes covering its early May Federal Open Market Committee meeting. The minutes weighed in heavily on the unsettled financial conditions that abounded in the run up to that gathering, spurred on by President Donald Trump's global trade war. While stress was real and broad based during that period, the minutes noted that Fed staff as well as policy makers saw orderly trading amid the tumult. Fed officials also signaled some concern on valuation levels in markets. The minutes also touched on the SRF, and noted "market outreach indicated that dealers had a higher willingness to use the facility when early settlement was offered." The minutes also said some Fed officials believed that a move to central clearing for the SRF might bolster usage in times of trouble. The looming launch of early SRF operations may not change much for now, however. Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York, said "usage of the regular afternoon SRF currently stands at zero and we don't expect SRF usage to increase simply because of the added operation." "During times of stress, conducting twice daily operations will be helpful in helping to backstop markets," Goldberg said, adding "there will probably still be some stigma in using the facility, which is something the Fed has been battling against in recent years, but the additional operation should eventually prove helpful." Stigma issues have dogged parts of the Fed's lending operations for some time, because many financial firms believe that tapping central bank cash, even when encouraged to do so by central bankers, signals weakness. Stigma issues have been most acute for the Fed's Discount Window lending facility for deposit taking banks, but some have said these concerns extend to the SRF as well.
Yahoo
22-05-2025
- Business
- Yahoo
Fed's Perli encourages firms' use of Standing Repo Facility
By Michael S. Derby NEW YORK (Reuters) -A Federal Reserve Bank of New York official responsible for implementing monetary policy said on Thursday the central bank is encouraging usage of a key liquidity tool that thus far has been largely dormant. When it comes to the Standing Repo Facility, or SRF, "I encourage our counterparties to use the SRF when it makes economic sense - the facility is there to support the effective implementation of monetary policy and smooth market functioning," said Roberto Perli, who manages the central bank's System Open Market Account, in the text of a speech prepared for delivery at a conference held by his bank. "It's in everyone's best interest if the SRF works as intended," Perli said. The Fed's SRF was launched in 2021 and provides eligible firms with fast cash in exchange for Treasury securities, in a bid to bolster market liquidity and avoid unexpected shortfalls that can be hard for the central bank to counter expeditiously. Thus far, markets, still flush with liquidity, have largely left the SRF alone outside of the end of the third quarter last year, a short period of volatility. Perli reiterated in his remarks that fairly soon the New York Fed will join its afternoon SRF operations with a morning availability. "In the not-too distant future," the New York Fed "will start implementing daily morning SRF operations that will also be settled in the morning," Perli said. "This will be an important step in enhancing the efficacy of the facility, and, at the margin, it can contribute" to allowing the Fed's balance sheet to be smaller than it would otherwise be. Perli is responsible for implementing monetary policy for the central bank, both in terms of the management of its short-term interest rate target and its massive holdings of cash and bonds. Perli noted in his remarks that the ongoing contraction of the Fed's balance sheet, which has seen the central bank shed just over $2 trillion in Treasury and mortgage bonds, likely has some ways to go, although there are signs of tightening money market liquidity. As Fed holdings shrink and reserve levels move down, "upward pressure on money market rates is likely to increase," Perli said, adding "we are starting to see the early signs of this in the repo market, especially around key reporting dates." This rise in repo market chop "is not a cause for concern," Perli said. But he also noted that it's likely to increase the need for markets to use the SRF to manage their liquidity needs.
Reuters
22-05-2025
- Business
- Reuters
Fed's Perli encourages firms' use of Standing Repo Facility
NEW YORK, May 22 (Reuters) - A Federal Reserve Bank of New York official responsible for implementing monetary policy said on Thursday the central bank is encouraging usage of a key liquidity tool that thus far has been largely dormant. When it comes to the Standing Repo Facility, or SRF, "I encourage our counterparties to use the SRF when it makes economic sense - the facility is there to support the effective implementation of monetary policy and smooth market functioning," said Roberto Perli, who manages the central bank's System Open Market Account, in the text of a speech prepared for delivery at a conference held by his bank. "It's in everyone's best interest if the SRF works as intended," Perli said. The Fed's SRF was launched in 2021 and provides eligible firms with fast cash in exchange for Treasury securities, in a bid to bolster market liquidity and avoid unexpected shortfalls that can be hard for the central bank to counter expeditiously. Thus far, markets, still flush with liquidity, have largely left the SRF alone outside of the end of the third quarter last year, a short period of volatility. Perli reiterated in his remarks that fairly soon the New York Fed will join its afternoon SRF operations with a morning availability. "In the not-too distant future," the New York Fed "will start implementing daily morning SRF operations that will also be settled in the morning," Perli said. "This will be an important step in enhancing the efficacy of the facility, and, at the margin, it can contribute" to allowing the Fed's balance sheet to be smaller than it would otherwise be. Perli is responsible for implementing monetary policy for the central bank, both in terms of the management of its short-term interest rate target and its massive holdings of cash and bonds. Perli noted in his remarks that the ongoing contraction of the Fed's balance sheet, which has seen the central bank shed just over $2 trillion in Treasury and mortgage bonds, likely has some ways to go, although there are signs of tightening money market liquidity. As Fed holdings shrink and reserve levels move down, "upward pressure on money market rates is likely to increase," Perli said, adding "we are starting to see the early signs of this in the repo market, especially around key reporting dates." This rise in repo market chop "is not a cause for concern," Perli said. But he also noted that it's likely to increase the need for markets to use the SRF to manage their liquidity needs.
Bloomberg
22-05-2025
- Business
- Bloomberg
NY Fed's Perli Sees Early Signs of Pressure in Money Markets
The manager of the Federal Reserve's massive portfolio of securities said the central bank's effort to reduce the size of its balance sheet is beginning to place pressure on the market for repurchase agreements. That pressure likely means the Fed's tools for controlling short-term interest rates will become increasingly important, Roberto Perli, manager of System Open Market Account at the New York Fed, said in prepared remarks Thursday.
Yahoo
11-05-2025
- Business
- Yahoo
Here's how an obscure bet on bonds almost crashed the $29 trillion Treasury market, Fed official says
A massive bond bet backfired in April — and a top Federal Reserve official now says it likely sparked the biggest spike in long-dated Treasury yields since 1987. Roberto Perli, who manages the Fed's roughly $6 trillion securities portfolio, said Friday that the abrupt unwinding of a popular trade known as the swap-spread trade likely exacerbated April's liquidity crunch in Treasurys. Here's how an obscure bet on bonds almost crashed the $29 trillion Treasury market, Fed official says Stocks are at a risk of a drop of nearly 20%, says Goldman Sachs. Here's the trigger. 'I am scared to death that I'll run out of money': My wife and I are in our 50s and have $4.4 million. Can we retire early? The 'Magnificent Seven' are back in the stock market's driver's seat — but are they still a buy? My father is giving me $250K to buy a home, but told me not to tell my two siblings. Am I morally obligated to tell them? The turmoil began after President Donald Trump announced sweeping new tariffs on April 2. At first, investors rushed into U.S. government debt in a 'classic flight-to-safety' trade. But just days later, yields on long-dated Treasurys reversed sharply; the 30-year yield BX:TMUBMUSD30Y rose nearly 50 basis points in a week, its biggest such jump since 1987. 'One factor that appears to have contributed to this unusual pattern is the unwinding of the so-called swap-spread trade,' said Perli, manager of the New York Fed's System Open Market Account, in a speech on Friday. Perli also pointed to reports of leveraged investors being caught off guard by sudden moves in the Treasury market. Investors piled into the swap-spread trade in early 2025 in hopes of a windfall should Trump usher in promised deregulation, especially for the banking sector. That trade backfired in April, exacerbating chaos in the nearly $29 trillion Treasury market, as MarketWatch explained last month — despite widespread reporting at the time that the classic Treasury market 'basis trade' was part of the problem. In his remarks on Friday at a Fed conference in Washington, Perli said there was 'no evidence' of an unwinding of that basis trade. Read: How the 'trade of the year' in the bond market became a nightmare for investors after Trump's tariffs Instead, Perli pointed to reports that 'many leveraged investors were positioned to benefit from a decrease in Treasury yields of longer maturity relative to equivalent-maturity interest-rate swaps, partially due to the expectation for an easing of banking regulation that would bolster bank demand for Treasurys.' He further explained that investors 'were making a directional bet that swap spreads would increase' — but, as MarketWatch reported, that didn't play out. Trump pointed to a 'yippy' bond market when he abruptly paused his April 2 tariffs for 90 days for most U.S. trade partners, with the exception of China. On Friday, Perli also said the Fed will soon open up a key liquidity tool, known as the standing repo facility, for morning use, in addition to its existing afternoon operations. 'The deterioration in Treasury market liquidity was real and significant,' he noted. Timeline: How Trump's first 100 days shook stocks, bonds and other financial markets My eldest son refused to share his father's $500K inheritance with his siblings. Should I cut him off? 'We live modestly': My wife and I have $900K in stocks and $380K in savings and CDs. Are we holding too much cash? One of the last obstacles to 24-hour stock trading is about to fall Pope Leo XIV's election: Pope Francis, like Warren Buffett, mastered the art of succession Suze Orman says retirees should have a 5-year 'just-in-case' fund. Is this true? Sign in to access your portfolio
