CANADA: Term Repo Operations Could Have Side Benefit For Funding Pressures
IFrom Dep Gov Gravelle's Q&A.
Q: What’s the difference between o/n and term repo operations, do you think it’s an efficient tool to normalize CORRA?
Gravelle: We often see intraday or recently it’s been every day upward, or downward, pressures on benchmark repo rates. Routinely, when we see upward pressure we intervene by repo operations and reverse repos on downward pressures. When we start doing term repos that might have an effect on the o/n repo rate, but it’s not the intention. It could be a side benefit though of allowing dealers to circulate that liquidity in the o/n markets.
[See chart below on recent upward pressures on the overnight target rate]
Q: How would you go to balance between off- and on-the-run bonds?
Gravelle: We’re looking to buy assets as a business-as-usual approach to offset currency in circulation, with a mix of assets. We’re buying GoC bonds in the secondary market. Our policy guideline will be to have as little market impact as possible, to get the bonds we need. We’re not trying to aim to have one set of bonds more liquid than the other, we just want the whole GoC market to improve and been more liquid.
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US TSYS/OVERNIGHT REPO: ON RRP Takeup Ticks Higher After 3+ Year Lows
Takeup of the Fed's overnight reverse repo facility ticked up $7.3B Tuesday to $118.1B after 3 consecutive drops that saw facility usage fall around $70B to the lowest level since April 2021.
- After dipping partly on account of Treasury settlements, ON RRP takeup is seen ticking higher through the coming sessions - with most attention in the space on whether the Fed as expected drops the ON RRP offer rate 5bp vs other administered rates.
US TSYS/SUPPLY: Review 20Y Bond Auction: Better Than Last, Not Better Than Most
The $13B 20Y Bond auction tails by 1.5bp, with a high yield of 4.686% versus a when-issued yield at auction cut-off of 4.671%.
- That keeps the consecutive streak of tailed auctions alive at 4 for the 20Y, with the latest sale showing fairly average statistics though better than November (which saw a high yield almost identical to December's sale, at 4.680%):
- The 1.5bp tail compares to a 5-auction average of 1.3bp, though better than the 3.1bp seen in November.
- Dealers took down 17.9% of competitives (vs 22.6% prior, 14.8% 5-auction average), with indirects 62.0% (69.5% prior, 70.1% avg) and directs 20.1% (7.9% prior, 15.1% avg).
- Bid/cover of 2.50x was likewise unremarkable vs the 5-auction average 2.53x, but better than November's 2.34x.
- Apparently there weren't high hopes for the 20Y sale given recent poor sales, as there was very limited reaction in Treasury markets, with March TY futures down 1 tick at 109-29 vs pre-auction cutoff.
FED: US TSY 19Y-11M BOND AUCTION: HIGH YLD 4.686%; ALLOT 81.64%
- US TSY 19Y-11M BOND AUCTION: HIGH YLD 4.686%; ALLOT 81.64%
- US TSY 19Y-11M BOND AUCTION: DEALERS TAKE 17.90% OF COMPETITIVES
- US TSY 19Y-11M BOND AUCTION: DIRECTS TAKE 20.14% OF COMPETITIVES
- US TSY 19Y-11M BOND AUCTION: INDIRECTS TAKE 61.96% OF COMPETITIVES
- US TSY 19Y-11M BOND AUCTION: BID/COV 2.50
