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Reverse Repo Closes, Whopping $2.2 Billion In Liquidity Taken Out Of Market

Tyler Durden's picture




 

Today's TOMO has closed, with the Fed conducting a whopping $2.180 billion reverse repo, easily the biggest operation of this nature since 2009, when the Fed commenced comparable liquidity extracting tests. The TOMO consisted of $770 million in Treasury, $710 million in Agency and $700 million in MBS being use a reverse repo collateral, paying 0.09%, 0.1% and 0.14% respectively to the banks involved, undoing the entire $1.6 billion TIPS POMO conducted earlier. It seems that Fed is doing all it can to telegraph that this time it really is done with QE2. In other words 2011 is not 2010, when this movie ran the last time around...

 

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Tue, 03/29/2011 - 13:56 | 1113475 unwashedmass
unwashedmass's picture

 

how soon do we think Bernanke resigns? I'm betting before yearend, possibly end of summer. Just before the real horror show begins

Tue, 03/29/2011 - 14:45 | 1113702 Bam_Man
Bam_Man's picture

Bernanke will step aside shortly. I am very surprised he has lasted this long.

The Fed has painted itself deep into a corner and getting out will be extremely "messy". He will soon hand the mess to some other sociopath megalomaniac, probably citing "health reasons".

Tue, 03/29/2011 - 15:09 | 1113792 Tom Servo
Tom Servo's picture

Is another Jew in the on-deck circle to take the reins?

Tue, 03/29/2011 - 22:37 | 1115457 Papasmurf
Papasmurf's picture

I'm sure Lloyd Blankein would serve some time in this position as a service to the communiity.

Tue, 03/29/2011 - 15:45 | 1113945 Popo
Popo's picture

Let's not forget that Greenspan attempted (briefly) to pull liquidity out of the market, and the market tumbled. Realizing he was f*cked, he resigned and handed the hot potato to Bernanke.

Bernanke knows full well that it is impossible to drain liquidity without collapsing his entire ponzi sham. He will pass the ball to someone else. But not before a few more absurd claims of "tailwinds", "sustainability" and success.

When we see the "Mission Accomplished" moment, you know he's fueling up the Gulfstream. (or more likely just running back to the security of ol' Princeton).

Central planners love to sound erudite and pensive about their policies, when the reality is that they are binary in nature, and in reality have only one setting: Print.

Tue, 03/29/2011 - 15:05 | 1113776 TheMerryPrankster
TheMerryPrankster's picture

Bernanke will die in a helicopter accident. The irony will be great, as will the implied warning for his successor.

Tue, 03/29/2011 - 13:57 | 1113480 Cognitive Dissonance
Cognitive Dissonance's picture

Market doesn't seem to care.

Yet!

Tue, 03/29/2011 - 14:09 | 1113537 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

What market?

Tue, 03/29/2011 - 14:13 | 1113566 thedrickster
thedrickster's picture

+1

Room temperature meat.

Tue, 03/29/2011 - 15:33 | 1113898 johngaltfla
johngaltfla's picture

We got a free market? When, where? I saw a picture on a milk carton years ago, somoene please, show it to me? Where's the wankster when you need him?

Tue, 03/29/2011 - 14:57 | 1113739 myTPisUSD
myTPisUSD's picture


"do not try to play the markets, its impossible, only try to realize the truth"

"what truth?"

"there is no market

"there is no market?"

"then you will see its not the market that bends, but only the Bernanke"

Tue, 03/29/2011 - 13:58 | 1113483 unwashedmass
unwashedmass's picture

wait, amend my last comment. i say ben goes when he's got his plane out on the runway...fully loaded with whatever gold this country has left......

Tue, 03/29/2011 - 14:02 | 1113503 NOTW777
NOTW777's picture

guess mu barack got away with his gold - nothing more is heard

Tue, 03/29/2011 - 14:15 | 1113575 Long-John-Silver
Long-John-Silver's picture

Gold plated Tungsten is $16.98 an ounce today.....

Tue, 03/29/2011 - 13:59 | 1113488 digalert
digalert's picture

this time it really is done with QE2

Built on and improved for punch, welcome QE3 the beginning.

Tue, 03/29/2011 - 14:00 | 1113493 ShankyS
ShankyS's picture

"Just pull it."

Tue, 03/29/2011 - 14:18 | 1113578 thedrickster
thedrickster's picture

Pipe down Larry, the BBC isn't yet ready.

Tue, 03/29/2011 - 14:01 | 1113505 LowProfile
LowProfile's picture

/sarcasm_on/

Whopping $2.2 Billion In Liquidity Taken Out Of Market

/sarcasm_off/

 

Tue, 03/29/2011 - 14:19 | 1113582 asteroids
asteroids's picture

At this rate it'll take Ben more than 4 years to shink his balance sheet to something reasonable. He's got to crank it up to $20B per day to make things right. At least.

Tue, 03/29/2011 - 14:48 | 1113705 bbq on whitehou...
bbq on whitehouse lawn's picture

You are correct (imho) to question this contraction. Im not sure myself if this was more then accounting magic.

We need to wait for the data on this repo as we do on so many other 'impacts'.

When these repo's impact bonuses and employment we will know truly its 'truthfulness'.

Tue, 03/29/2011 - 16:02 | 1114007 Jim B
Jim B's picture

WOW! 2 whole billion!!!!

Tue, 03/29/2011 - 17:09 | 1114409 alfred b.
alfred b.'s picture

 

  Wow indeed.....that's just lunch money, without tip !!!

 

 

Tue, 03/29/2011 - 14:01 | 1113507 LawsofPhysics
LawsofPhysics's picture

Sorry, the "movie" still has all the same players, directors, and screenwriters.  Nothing has changed.  A whopping 2.2 billion, really?  How much did they monetize last week alone?

Tue, 03/29/2011 - 15:37 | 1113913 Popo
Popo's picture

Bernanke's efforts to seem hawkish are nothing short of laughable. The man must believe he has some credibility left. 2.2 billion? Oh noes!

Tue, 03/29/2011 - 14:04 | 1113508 Yikes
Yikes's picture

Am I reading the summary right: A 1 day Reverse Repo?  Well gee, I guess Ben was right when he said he was 100% confident he could pull liquidity out of the market when the time came. What more proof do you need.

 

[shaking head] A 1 day Repo.  Winning!

Tue, 03/29/2011 - 14:10 | 1113541 depression
depression's picture

And people still doubt the Bernankster !

Pump $600 Billion in, and drain $2 Billion out !

Tue, 03/29/2011 - 14:44 | 1113675 MarketTruth
MarketTruth's picture

EXACTY as the USA gov spends over $2000 billion a year yet are claiming to be cutting a 'big' decrease of $61 billion. Normally this would be a joke, yet those of you stuck within the USA will be paying the piper sooner rather than later.

Tue, 03/29/2011 - 14:46 | 1113677 MarketTruth
MarketTruth's picture

ZH hiccup

Tue, 03/29/2011 - 14:46 | 1113689 MarketTruth
MarketTruth's picture

ZH hiccup 2

Tue, 03/29/2011 - 14:05 | 1113520 PunkSgt
PunkSgt's picture

what is TOMO?

Tue, 03/29/2011 - 14:06 | 1113534 AlaricBalth
AlaricBalth's picture

Temporary open market operations

Tue, 03/29/2011 - 14:15 | 1113572 NotApplicable
NotApplicable's picture

Because as we all know, there is no way that operations draining liquidity can be made permanent.

Tue, 03/29/2011 - 14:09 | 1113548 mynhair
mynhair's picture

Temporary Open Manglement Operation

Tue, 03/29/2011 - 14:15 | 1113570 AlaricBalth
Tue, 03/29/2011 - 16:01 | 1114000 moriarty
moriarty's picture

Thanks for my on going education. One day i may be up to speed

Tue, 03/29/2011 - 17:52 | 1114594 NonAggressionPr...
NonAggressionPrinciple's picture

...by the time i understand modern finance there will no longer be modern finance..

Tue, 03/29/2011 - 16:17 | 1114105 Regular Guy
Regular Guy's picture

Thanks for the link. Great information.

Tue, 03/29/2011 - 14:17 | 1113586 Byte Me
Byte Me's picture

TOMO

Bloke who sings "It's not unusal.."

Tue, 03/29/2011 - 16:47 | 1114277 Fistfull of wor...
Fistfull of worthlessDollars's picture

Turd Obfuscating Market Openness

Tue, 03/29/2011 - 14:12 | 1113546 Boston
Boston's picture

"It seems that Fed is doing all it can to telegraph that this time it really is done with QE2. In other words 2011 is not 2010, when this movie ran the last time around..."

Yeah, but what about QE Lite? That looks like it will continue.

And if/when the SHTF (and OK, the pain threshold could be much higher this year), then QE3 will be announced.  America's investing public will demand it.  The Fed will ride to the rescue and voila, the reflation trade will begin anew.

Tue, 03/29/2011 - 14:14 | 1113571 ehildret
ehildret's picture

The fed's play to save face is to blame the crash/dollar demise on Congress/Treausry when they start screaming for more QE (heroin) thus; crash and dollar demise to be laid at the feet of congress.

Tue, 03/29/2011 - 14:11 | 1113549 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

I love the way they have gold pegged down like a muzzled dog.

Tue, 03/29/2011 - 14:33 | 1113639 Yardfarmer
Yardfarmer's picture

take consolation Monkey Boy, apparently Au has a lot more potential downside than most of us think, and infinitely more upside.http://www.martinarmstrong.org/files/how%20and%20when%2003-01-2011.pdf

Tue, 03/29/2011 - 14:52 | 1113704 falak pema
falak pema's picture

Gold is like the muzzled dog...It's the PDs who decide if and when he gets unleashed, as their spear carrier at the FED can manipulate the markets using their PD channels to counter small investor movements, however rational, by blocking it massively in parallel, paper PM markets controlled exclusively by them; false flag trick per se. Only when the market tsunami unfurls, that's when the FED/PD barrier folds in, like in reality...But we're not there yet...Benocide is still king of the heap...The Bastille is still Versailles...it's not yet toast. According to Ben it'll never be. That's the current FED mantra!

Tue, 03/29/2011 - 14:50 | 1113720 Bam_Man
Bam_Man's picture

"Pegged down" like a beachball under water.

Tue, 03/29/2011 - 14:11 | 1113551 defn8Dog
defn8Dog's picture

Maybe clips of Wiley Coyote off-the-cliff will be featured while it's still funny.    

Tue, 03/29/2011 - 14:14 | 1113560 ehildret
ehildret's picture

I think I read somewhere that Gross was going to start buying the MBS from the fed, for pennies on the dollar.  Could be PIMCO was the buyer of the MBS today...  just thinking 

Tue, 03/29/2011 - 14:12 | 1113561 strannick
strannick's picture

Since you guys are in an explanatory mood, what the @#%& is a Reverse Repo?

Thanks

Tue, 03/29/2011 - 14:25 | 1113604 AlaricBalth
AlaricBalth's picture

From FRB NY:

The Fed uses repurchase agreements, also called "RPs" or "repos", to make collateralized loans to primary dealers. In a reverse repo or “RRP”, the Fed borrows money from primary dealers. The typical term of these operations is overnight, but the Fed can conduct these operations with terms out to 65 business days.

  • The Fed uses these two types of transactions to offset temporary swings in bank reserves; a repo temporarily adds reserve balances to the banking system, while reverse repos temporarily drains balances from the system.
  • Repos and reverse repos are conducted with primary dealers via auction. In a repo, dealers bid on borrowing money versus various types of general collateral. In a reverse repo, dealers offer interest rates at which they would lend money to the Fed versus the Fed’s Treasury general collateral, typically Treasury bills.
Tue, 03/29/2011 - 14:33 | 1113632 Shell Game
Shell Game's picture

Helpful, thanks.

Tue, 03/29/2011 - 14:34 | 1113637 IBelieveInMagic
IBelieveInMagic's picture

So it not an outright sale from the Feds to the Banks -- the toxic assets will be returned to the Feds after the period -- so the reduction in Fed balance sheet is very ephemeral?

Tue, 03/29/2011 - 14:45 | 1113695 SheepDog-One
SheepDog-One's picture

Yes passing around debt from one pocket to another.

Tue, 03/29/2011 - 14:52 | 1113725 falak pema
falak pema's picture

+100! The ECB does likewise, similar deals, but denominated differently; as does the bank of England. All in the same 'MINDSET'...how convenient...

Tue, 03/29/2011 - 14:31 | 1113615 strannick
strannick's picture

 


Reverse repo = The Fed sells US government securities with an agreement that the buyer will sell them back at a speci

fied price on a specified date, again usually within two weeks. A reverse repo is thereforelike a temporary open market purchase, temporarily increasing the monetary base.

Tue, 03/29/2011 - 14:55 | 1113734 bbq on whitehou...
bbq on whitehouse lawn's picture

Want to buy some flour with the understanding i will buy it back from you within 64 days. But you and other bread makers will 'bid' on the price i buy back this flour at.

In the ballpark?

 

Tue, 03/29/2011 - 22:45 | 1115494 Papasmurf
Papasmurf's picture

It's different.  In 64 days the money is worth way less.

Tue, 03/29/2011 - 14:55 | 1113735 AlaricBalth
AlaricBalth's picture

A reverse repo is a temporary open market transaction which has the effect of draining reserves (cash) from the banking system. Fed lends securities for a set period and upon maturity of that set period, the securities are returned to the Fed and the cash goes back to the counterparty.

Tue, 03/29/2011 - 15:05 | 1113768 bbq on whitehou...
bbq on whitehouse lawn's picture

Buying back at a time of surplus allows the PD to keep their profit margins fat.

Like the flour. If you buy flour during surplus, it allows the bread maker to keep his high margins.

 

 

Tue, 03/29/2011 - 15:06 | 1113779 AlaricBalth
AlaricBalth's picture

Exactly! Primary dealers get to profit from what it effectively a wash sale.

Tue, 03/29/2011 - 14:30 | 1113627 defn8Dog
defn8Dog's picture

Sort of a turnabout is fair play where banks become lenders to the Fed.

Tue, 03/29/2011 - 14:33 | 1113641 web bot
web bot's picture

It's another form of the Fed #ucking you, in a way that you have not heard of before.

Next question...

Tue, 03/29/2011 - 15:19 | 1113831 Bastiat
Bastiat's picture

A repurchase agreement (or Repo) is when you "buy" a security with the agreement to "resell" the security to the original owner at a preset price at a date certain in the future.

A Reverse Repo is the opposite: you start out with the security and "reverse it out" or sell it with the agreement to repurchase it etc. 

Repos live in a sort of grey area between an actual sale/purchase and a collateralized loan.

So when Bennie does a Reverse Repo he puts paper out and takes in money. That is why it is considered a liquidity drain. 

 

Tue, 03/29/2011 - 14:14 | 1113562 Bicycle Repairman
Bicycle Repairman's picture

10 steps forward.  One step backwards.

Tue, 03/29/2011 - 14:15 | 1113564 DosZap
DosZap's picture

When the REAL #'s come out, and are YET again reduced to reality, for whom do the bells TOLL?.

The Market Cliff dives, or we have a change of heart at the Fed?.

We just hate this, but WE have NO choice!!

If they crash the market( a 30% correction will start a lemming race),with this, how you gonna undo whatycha dun dun?

Tue, 03/29/2011 - 14:15 | 1113568 mynhair
mynhair's picture

Anyone diving into TZA here?

Tue, 03/29/2011 - 19:41 | 1114969 Massholio
Massholio's picture

Always watching…BGZ too, but I think you're right, small caps will go down fast and hard when the time comes. I keep my finger near the red button. 

Tue, 03/29/2011 - 14:17 | 1113576 wherewasi
wherewasi's picture

Hey TD or anyone,

Way off subject... but...

At the office someone brought up the guy who threatened the regulators back in January (McCrudden?)  Is there any update on his situation?  Is he for-real nuts or is he just getting silenced/moved where he gets no attention?

Thanks

Tue, 03/29/2011 - 14:19 | 1113585 Milton Waddams
Milton Waddams's picture

Be aware of disinformation:

"Like the earlier operational readiness exercises, this work is a matter of prudent advance planning by the Federal Reserve. The operations have been designed to have no material impact on the availability of reserves or on market rates. Specifically, the aggregate amount of outstanding transactions will be very small relative to the level of excess reserves, and the transactions will be conducted at current market rates. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future."

http://www.newyorkfed.org/markets/opolicy/operating_policy_110323.html

QE is over but not for any of the reasons that have been discussed on this honey pot.

Tue, 03/29/2011 - 14:23 | 1113598 Cognitive Dissonance
Cognitive Dissonance's picture

Who are you calling a honey pot? I resemble that. :>)

But I also agree. Disinformation, strawmen and red herrings are the stock in trade of the con men.

Tue, 03/29/2011 - 14:23 | 1113596 djsmps
djsmps's picture

Did the Fed reveal their troubled bank list yet?

Tue, 03/29/2011 - 14:25 | 1113601 RobotTrader
RobotTrader's picture

This is what it boils down to.

Virtually every "technical trader" who manages money is out of the market right now, based on the distribution and the huge break from two weeks ago.

If the financials and REITS make any further upside progress whatsoever off these bullish springs, you will see an immediate buying melee, and a virtual panic to get back in at any price.

Tue, 03/29/2011 - 14:46 | 1113676 treasurefish
treasurefish's picture

.

Tue, 03/29/2011 - 14:47 | 1113682 treasurefish
treasurefish's picture

..

Tue, 03/29/2011 - 14:45 | 1113700 SheepDog-One
SheepDog-One's picture

Boobies.

Tue, 03/29/2011 - 14:44 | 1113691 treasurefish
treasurefish's picture

Is that a cup and handle, or a double top?

Tue, 03/29/2011 - 15:48 | 1113954 bbq on whitehou...
bbq on whitehouse lawn's picture

I've always liked your take on 'market reality', reits will go up. Mainly because of wrong 'headedness'.  People who control money are stupid but need to be seen as 'correct enough not to go to jail'.

Given what is in the winds i would not be suprised if your chart drew 17 in 3 months; even 18 in 3 months.

Would i buy it here; well yes and no. No if your wealth is safe. Yes if you want to gamble on a horse race to hell.

Robots might want to buy here. Rational human beings might want to just grab a few grams of gold or an ouce or two of silver.

Ps. gold and silver will have a correction after Qe2 ends; yes it will end on schedule. 'Face' or aragence mandate it so. Presupposion of wealth or need, is often disproven. Non the less pump and dump is live and well in the world. Thats why tops and bottoms are for fools and gamers.

 

Tue, 03/29/2011 - 14:26 | 1113608 Robslob
Robslob's picture

Let me know when they Reverse Repo $8 Trillion and I will start listening....

Tue, 03/29/2011 - 14:28 | 1113616 babylon15
babylon15's picture

So if I understand correctly:

Step 1. Bank takes dump in bag, stamps a $100 sticker on it.
Step 2. Bank borrows $100 from Fed with bag as collateral.
Step 3. Banks buy stocks and commodities with $100.
Step 4. Banks repurchase the bag from Fed for $100.14. Allegedly to raise this money they must sell assets...

Bag still worth zero. Banks still facing enormous writedowns. Is that about right?

Tue, 03/29/2011 - 14:48 | 1113708 SheepDog-One
SheepDog-One's picture

'Bout it, yep. Just another day in Imaginationland.

Tue, 03/29/2011 - 14:29 | 1113621 unionbroker
unionbroker's picture

if the fed buys with make believe money then sells to someone else does the money become real or does it cease to exist?

Tue, 03/29/2011 - 14:38 | 1113668 DepthCharge
DepthCharge's picture

This is a test, it is only a test.   The FED needs to test its reverse pumping system just in case they need to get food and energy inflation under control. 

Tue, 03/29/2011 - 14:42 | 1113674 Robslob
Robslob's picture

It ceased to exist starting in 1971....now ask your question again.

Tue, 03/29/2011 - 14:43 | 1113679 Robslob
Robslob's picture

It ceased to exist starting in 1971....now ask your question again.

Tue, 03/29/2011 - 14:45 | 1113685 Robslob
Robslob's picture

It ceased to exist starting in 1971....now ask your question again.

Tue, 03/29/2011 - 14:45 | 1113686 Robslob
Robslob's picture

It ceased to exist starting in 1971....now ask your question again.

Tue, 03/29/2011 - 14:45 | 1113687 AR15AU
AR15AU's picture

Can't wait until:

The TOMO consisted of $770 million in AAPL, $710 million in NFLX 


Tue, 03/29/2011 - 14:51 | 1113722 delivered
delivered's picture

Struggling to see why this really makes a difference. If the banks buy this crap from the Fed with money/cash held on reserve with the Fed in the first place (which they really have no interest in lending anyway), then it would appear to be one big circle jerk. In theory, I understand that banks may have to sell "other" assets to execute the transaction but I'm not buying this as the banks are sitting on excess reserves to begin with. So this just appears to be one big accounting entry that moves one form of currency (i.e., treasuries, agencies, and MBS) to another (cash).

Actually, I see this as a way for the Fed to further monetize US debt without launching another QE. Take excess reserves and transfer them into treasuries, agencies, and MBS via repos. The Fed adds treasuries via its POMO and then subtracts them via TOMO/Repos. The Fed's balance sheet stays constant but transfers more of the funding requirements of the US Government to the banks in a stealth mode.

Of course the real damage with this strategy over the longer term is that the crowding out effect (i.e., the US Government consuming large amounts of capital the private sector needs to fuel innovation and real economic growth) will kill the private sector leaving the economy in even worst shape. I'm wondering if eventually we will see the same issue playing out with US banks as in Europe as they end up getting loaded with so much government debt that basically their only purpose is to finance soverign debt.

Remember when there was talk about requiring retirement accounts such as 401ks to invest X% into US government debt? Maybe this is the backdoor way of achieving this goal as excess balances in your savings, checking, MM, etc. accounts may continue to be allocated in higher percentages to US debt (via banks lending to the US government rather than the private sector).

Just some thoughts but again, it appears to me to be one big circle jerk with the money never finding its way into the real economy but just changing hands behind TPTB (of course, all earning a commission on every transaction).

Tue, 03/29/2011 - 15:02 | 1113764 defn8Dog
defn8Dog's picture

If only the PDs don't start squealing about getting Tier 1 capital exemptions (again) in response, it will mean we're well on our way to one big happy ending and they will put the Bernank on a Wheaties box. 

Tue, 03/29/2011 - 14:57 | 1113742 fuu
fuu's picture

WTF are the discount window numbers ordered to be released within 5 days by SCOTUS last week?

Tue, 03/29/2011 - 15:05 | 1113771 scaleindependent
scaleindependent's picture

Don't you worry your chimp head about those things. They are not important.

Do you think the executive branch will ever force the involved PTB  to release the information?

They may release immaterial information, but the real deal will be kept secret.

The Judicial branch without support from the executive branch is a wilted, putrified branch.

Tue, 03/29/2011 - 15:00 | 1113754 scaleindependent
scaleindependent's picture

What is the TOMO schedule? Will it crank up or is this TOMO masturbation to appease the inflation hawks.

In other words, is this for real?

Tue, 03/29/2011 - 15:04 | 1113774 Seasmoke
Seasmoke's picture

Jeff Skilling and Andy Fastow must be pissed !

Tue, 03/29/2011 - 15:06 | 1113775 buzzsaw99
buzzsaw99's picture

Humperdinck!

Tue, 03/29/2011 - 15:14 | 1113803 TheMerryPrankster
TheMerryPrankster's picture

Did Obama buy a ranch in South America, like Bush did? That might be the tell on when this jitney runs out of gas and goes over the cliff.

President Biden declares new currency as he says its morning in America again, oh wait thats a flaming meteor that is lighting the night skies and giving the illusion of morning.

Tue, 03/29/2011 - 15:18 | 1113827 plocequ1
plocequ1's picture

Repo this. Right here.

Tue, 03/29/2011 - 15:24 | 1113859 AldoHux_IV
AldoHux_IV's picture

Everyone in the fed will be tried for their crimes against humanity-- there is little time left for these poor excuses for human beings.

Tue, 03/29/2011 - 15:34 | 1113896 99er
Tue, 03/29/2011 - 15:36 | 1113910 mogul rider
mogul rider's picture

Gold to 700 bucks!

Just means I back a bigger fucking bus. Maybe a freighter is more appropriate in the post QE2 world

Which is really just pergatory between that and QE3

Tue, 03/29/2011 - 15:40 | 1113922 AlaricBalth
AlaricBalth's picture

Into the mind of Ben Bernanke: A must read!

http://www.federalreserve.gov/pubs/feds/2004/200448/200448pap.pdf

 

Monetary Policy Alternatives at the Zero Bound:
An Empirical Assessment
Ben S. Bernanke, Vincent R. Reinhart, and Brian P. Sack

The success over the years in reducing inflation and, consequently, the average level of
nominal interest rates has increased the likelihood that the nominal policy interest rate
may become constrained by the zero lower bound. When that happens, a central bank
can no longer stimulate aggregate demand by further interest-rate reductions and must
rely on “non-standard” policy alternatives. To assess the potential effectiveness of such
policies, we analyze the behavior of selected asset prices over short periods surrounding
central bank statements or other types of financial or economic news and estimate “noarbitrage”
models of the term structure for the United States and Japan. There is some
evidence that central bank communications can help to shape public expectations of
future policy actions and that asset purchases in large volume by a central bank would be
able to affect the price or yield of the targeted asset.

Tue, 03/29/2011 - 16:13 | 1114079 Nels
Nels's picture

eh.  It's only a temporary sale, and one they can't keep up forever.  It's good for insider trading though, once they get it calibrated.

I'd worry more if I saw them start increasing the size of these reverse repos, as they might do to try and gauge the breaking point.  Then, supposing they wanted to create mischief, they could do a big enough reverse repo just before an expected government shutdown to prove that we really really need the government up and spending.

How many talking heads would link a market collapse to a government shutdown rather than the Fed draining liquidity?

Tue, 03/29/2011 - 17:10 | 1114411 chinaguy
chinaguy's picture

Help me out...was this reverse repo to be returned in one day or is the repurchase further out?

Tue, 03/29/2011 - 19:25 | 1114917 Catullus
Catullus's picture

Is the Fed running a Repo 105 before quarter close?

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