Fed’s $13.5B Repo Injection Raises New Liquidity Concerns
On December 1, the U.S. Federal Reserve $13.5 billion into the banking system through an overnight repurchase agreement. This happened at the identical time as the bank’s quantitative tightening program officially ended.
The New York Fed’s figures reveal that this move is the second-largest infusion of liquidity since the Covid-era interventions and even largeger than what happened during the Dot-com bubble.
The midnight measure came later than a $25 billion repo that happened earlier that day, increasing the total amount of liquidity support to $38.5 billion. It is said that the collateral for the combined operations was about $12.5 billion in U.S. Treasuries and $12.5 billion in mortgage-backed securities. This shows that there is a lot of demand for short-term loans against high-quality assets.
Rising Repo Demand Revives Liquidity Stress Worries
The latest facility came right later than the Fed injected $29.4 billion into the repo market on October 31, which was the largest single liquidity operation since the epidemic. The goal of that move was to make things easier in the , where banks were having trouble getting short-term loans because of the extended U.S. government shutdown.
Analysts say that high demand for repos usually means that main dealers and banks are having trouble with their balance sheets and that dollars are hard to come by.
People have compared the current situation to the chaos in the repo market in September 2019, when the Fed had to do emergency operations for several months to stabilize funding markets because of high demand.
Timing Clashes With Risk-Asset fragileness
The most recent injections happened exactly when quantitative tightening was about to come to an end, and the crypto markets were under a lot of strain. This raised questions about when and how well the support worked.
People usually think that these kinds of liquidity measures are excellent for risk assets, but the actions came later than large drops in crypto equities and large tokens.
The conclusion of QT, more repo use, and persistent market volatility have led to a debate about whether the underlying funding circumstances are fragileer than the headline data show.
People in the market are keeping an eye on upcoming policy announcements to determine whether the central bank views these operations as transient technical changes or the beginnings of a longer-term shift in its liquidity stance.
BTC and MicroStrategy Show Cautious Rebound
The crypto markets reacted cautiously to the Fed’s efforts to increase liquidity. rose nahead 2% over the last 24 hours, bouncing back from a recent drop to $83,862 and trading near $86,900. The price reached a high of around $87,325 during the day, and trading volume rose 13%, suggesting traders are again interested.
stock, which is highly tracked as a leveraged proxy for BTC exposure, rose 0.68% in pre-market trading later than closing 3.25% lower at $171.42 on Monday. This was during a time when the whole crypto market was tradeing off.
The company recently announced a $11.7 million BTC purchase, bringing its total holdings to over 650,000 BTC. This further linked its stock performance to the crypto market.
