Sign up to create alerts for Instruments,
Economic Events and content by followed authors
Free Sign Up Already have an account? Sign In
YC Teng
Oct 12, 2019 11:31PM ET
It is.
0
0
Quotes
All Instrument Types
- All Instrument Types
- Indices
- Equities
- ETFs
- Funds
- Commodities
- Currencies
- Crypto
- Bonds
- Certificates
Please try another search
🙌 It's Here: the Only Stock Screener You'll Ever Need Get Started
Fed’s Plan to Buy Treasury Bills Could Be an Expensive Ordeal
Published Oct 11, 2019 02:45PM ET
Updated Oct 11, 2019 04:12PM ET
(Bloomberg) -- The Federal Reserve’s attempt to keep U.S. funding markets calm by rebuilding its cache of bank reserves could be expensive.
The Fed said Friday it will begin buying $60 billion of Treasury bills per month -- with maturities ranging from five weeks to a year -- at least through the second quarter of 2020 to improve its control over the benchmark rate it uses to guide monetary policy. It’s the central bank’s latest measure meant to prevent a repeat of the mid-September turmoil that rocked money markets.
But the Fed may have to pay up to convince people to part with the securities since investors are clamoring to hold bills. Money funds’ holdings of them topped $1 trillion in September, according to Peter Crane, president of Crane Data LLC. “Funds love them,” Crane said.
Money-market reforms from 2016 spurred record inflows into government funds, driving demand for assets like repurchase agreements, Treasury bills and short-term agency debt. Regulations also require daily and weekly liquidity thresholds for money-market funds, and T-bills can satisfy those requirements.
“Everybody’s got bills somewhere, but it’s shaking those out in size that the Fed wants,” said Blake Gwinn, strategist at NatWest Markets. “I’m wondering what kind of premium the Fed is going to have to pay to get them.”
Even though primary dealer holdings of Treasuries are about $190 billion, their T-bill levels are quite low by comparison: around $7 billion. There’s not enough bills to buy just from the primary dealers, and so the Fed is going to have to convince other investors -- like money funds or corporations -- to part with their T-bills.
However, money markets -- particularly the government ones -- need the Treasuries, both as an investment vehicle, but also because they satisfy fund liquidity requirements. Fed purchases could drive yields down. If a money manager’s objective is to generate as much yield as possible for investors, why sell to the Fed at a lower rate? All that’s going to happen is the fund has to reinvest it in bills at a lower rate, reducing the yield the fund offers investors.
In addition to the Treasury bill purchases, the central bank said Friday that it will continue to conduct overnight and term repo operations through January, if not longer. The Fed has done liquidity injections like these since Sept. 17, and they’ve helped calm this vital funding market.
Related Articles
Comments (2)
ottin nerner
Oct 11, 2019 4:18PM ET
you know this is not QE, but, techincally it's QE, but it is not.... lol
1
0
Add Chart to Comment
Confirm Block
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
Report this comment
I feel that this comment is:
Comment flagged
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Enrich the conversation, don’t trash it.
Stay focused and on track. Only post material that’s relevant to the topic being discussed.
Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.