The Federal Reserve Bank of New York added $92.7 billion in temporary liquidity to the financial system on Tuesday.
The intervention came in two parts. There were $72.75 billion in overnight repurchase agreements, or repos, and $19.95 billion in 14-day repos. The central bank took all the securities it was offered.
Fed repo interventions take in Treasury and mortgage securities from eligible banks in what is effectively a short-term loan of central-bank cash, collateralized by the securities.
The Fed’s interventions are aimed at ensuring that the financial system has enough liquidity and that short-term borrowing rates remain well-behaved, with the central bank’s federal-funds rate staying within the 1.5%-to-1.75% target range. The effective fed-funds rate stood at 1.55% on Monday. The broad general collateral rate for repo trading stood at 1.54%, also for Monday.
The Fed has been intervening in markets in the current fashion since mid-September, when short-term rates unexpectedly shot up on a confluence of factors, although it has used similar operations for decades to manage short-term rates.
Since the large interventions started, money-market rates have been well-behaved. The Fed is using temporary operations to tamp down on any possible volatility, while purchasing Treasury bills to build up reserves in the banking system. It hopes that by buying Treasury bills it will be able to cut back on repo interventions at the start of next year.
The Fed currently expects to buy Treasury bills through the middle of next year.
Write to Michael S. Derby at michael.derby@wsj.com
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