NB Fed wants to ease money market rates after Bloomberg's financing of the crisis

(Bloomberg) – The New York Fed has announced that it will proceed with its first one-day repurchase agreement for a decade, following an exceptional rise in the bank's interest rates. US money market in the middle of the month, which continued Tuesday.

The operation to keep the fed funds rate in target ranges is underway for up to $ 75 billion, the Fed said in a statement. Securities eligible for collateral include the Consolidated Revenue Fund, agency receivables and mortgage-backed securities.

In a day-to-day pension system, the Fed lends money to major operators against Treasury securities or other guarantees. The transaction was "routine before the Fed's balance sheet was extended in 2009," according to a research note from Wrightson ICAP (LON :), which has become its main tool for implementing monetary policy.

The interest rate on day-to-day loans secured by Treasury securities, which generally remains close to the Federal Reserve's target for the federal funds rate, hit an intra-day high of 8% on Monday and soared to 8.75% Tuesday, according to ICAP prices. The fed funds target, which the central bank is expected to cut by a quarter point on Wednesday, is 2% to 2.25%.

Increases in the repo rate normally occur only at the end of the quarter, sometimes at the end of the month. The rise recorded in the middle of the month was attributed to a convergence of events that have imbalanced the cash reserves of the banking system compared to the volume of securities recorded in the balance sheet of the dealers: date of payment of the tax on the companies, last week's Treasury auction settlement and last week's bond. sale in the market, in which investors resold securities to brokers.

"This is certainly painful for companies that have to fund positions," said Thomas Simons, an economist at Jefferies LLC. "It's hard for the dealer community. But it is not a systemic threat. "