FED: NY Fed Plans Regular Early Repo Operations Soon

NY Fed SOMA Manager Perli at the 8th Short-Term Funding Markets Conference in Washington, D.C. said that the NY Fed’s plans to move to a regular provision of early repo operations to enhance effectiveness of monetary policy implementation and market functioning. He also notes no evidence of basis trade unwind amidst the “real and significant” deterioration in Treasury liquidity in April. See full remarks here. 

• “A key point that I would like to emphasize is that, although liquidity in Treasury cash markets became strained in early April, those markets continued to function, in part because of the resilience of funding liquidity in the Treasury repo market.”
• Regular early repo operations to be offered soon: Having run test operations, including through Mar 27 – Apr 2 to span quarter-end, and following primary dealer consultations, “the Desk plans on making early-settlement SRF auctions part of the regular SRF daily schedule, at some point in the not-too-distant future. These early-settlement auctions, combined with the current afternoon auctions, will enhance the effectiveness of the SRF as a tool for monetary policy implementation and market functioning.”
• April deterioration in Treasury liquidity: “The deterioration in Treasury market liquidity was real and significant. Still, it was not exceptional, in the sense that it was largely commensurate with the increase in interest rate volatility.”
• No evidence of unwind of the basis trade in April: One rough proxy for hedge funds’ basis trading volumes stood at about $1 trillion in March 2025, “well above levels observed in February 2020. The sudden unwind of those trades could have been an additional and significant source of market instability due to associated selling pressures that could have overwhelmed dealers, whose balance sheet capacity was already limited.”
• “One factor that could lead to a rapid unwind of the basis trade is substantial repo rate volatility or a persistent increase in repo rates, which could in turn increase the cost of financing the position and therefore make it unprofitable. But this by and large did not happen in April since repo rates were fairly stable and dealers remained willing and able to intermediate. As a result, according to Desk staff’s estimates, the basis remained relatively stable. This stands in sharp contrast to March 2020, when the basis jumped by about 100 basis points and the unwinding of basis trades was likely an important contributor to the sharp dislocation in the Treasury market we observed at that time.”
  (Corrected location of conference from Iceland)