Fed awards $277.45 billion in one-day reverse repos

The Federal Reserve on Wednesday awarded $277.45 billion of one-day fixed-rate reverse repurchase agreements to 82 bidders at an interest rate of 0.25 percent, the New York Fed said on its website.

The reverse repurchase agreement program is seen as a critical policy tool for the Fed to drain money from the financial system in an effort to achieve its interest rate objectives.

Wednesday’s auction ranked as the third-largest ever for the reverse repo program.

It was also by far the largest since the Fed earlier this month raised interest rates for the first time in nearly a decade. At that time, the U.S. central bank also began the formal use of reverse repos to control the lower bound of its targeted range for overnight lending rates among banks.

The size of Wednesday’s operation was exceeded only by a $339.48 billion auction on June 30, 2014, and a $300 billion one on Sept. 30, 2014, and suggests the operation set for Thursday, the last of the year, may see even greater demand from the dealers and funds authorized to participate.

Demand for the deals typically rises at the end of each quarter as financial institutions shore up balance sheets by using the Fed as a counterparty to lower their regulatory risk profiles. In the transactions, banks and other qualified financial institutions park their cash with the Fed overnight, receiving Treasury securities as collateral and 0.25 percent in interest.

The Fed has said it is prepared to offer all of the nearly $2.5 trillion of Treasuries on its balance sheet as collateral should the demand arise.

source: Reuters