Trimming repo Operations

(Bloomberg) — About 24 hours ago, we saw overnight equity weakness devolve into what was basically a nothing day. Could the opposite be in play today as punters trim risk to avoid a shock over the long weekend? It’s entirely possible, because after all the S&P 500 has fallen on every Friday this year bar one (ironically enough, it was the Friday before the MLK holiday last month.) Yesterday afternoon’s announcement that the Fed is trimming the size of its repo operations twice over the next month came as something of a surprise, but it’s probably not a shock. While some of the recent operations have been over-subscribed, in the grand scheme of things the uptake of the repo facilities have been falling recently; the amount of repos on the Fed balance sheet has fallen by some $90 billion this year as bill purchases take over the responsibility of providing reserves to the system. The level of bank reserves ($1.69 trillion) is now the highest in nearly a year, so all in all the Fed’s operations are working as intended. The upshot, then, is that over the next couple of months speculation will start to mount as to how and when the Fed will talk about dialing down or ending the bill purchases. If you are skeptical that these operations have any influence on financial markets, then that will be no big deal. However, if you view them as QE (or think that everyone else views them as QE!), then there may well be a few interesting conversations to be had come March and April. To contact the reporter on this story: Cameron Crise in New York at

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