The New York Federal Reserve said Monday that it will increase the amount of cash it provides for the nation's banking system as coronavirus concerns hammer government bond yields and threaten money market liquidity.
The Fed said it would add $50 billion to its overnight repo operations -- taking the total to $150 billion -- while offering an additional $45 billion for two-week repo operations. The Fed ultimately accepted $112.93 billion in overnight bids, the most since it revived its extraordinary operations late last summer.
Just two months ago, the Fed said it would gradually reduce the amount of cash it offered in repo operations as stocks raced towards all-highs in mid February.
In a so-called repo, any of the twenty-four Primary Dealers in the Fed system can exchange eligible collateral, such as U.S. Treasury bonds or mortgage-backed securities, for cash. The banks will then repurchase those same securities at a fixed point in time.
"These adjustments are intended to ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures that could adversely affect policy implementation," the New York Fed said in a statement Monday. "They should help support smooth functioning of funding markets as market participants implement business resiliency plans in response to the coronavirus. The Desk will continue to adjust repo operations as needed to foster efficient and effective policy implementation consistent with the FOMC directive."
The Fed move provided at least some support for U.S. bank stocks in pre-market trading, although major lenders were marked significantly lower as investors extended bets on near-term rate cuts.
JPMorgan Chase (JPM) - Get Report shares were marked 9.33% lower in pre-market trading to indicate an opening bell price of $98.00, a move that would take the one month decline of the country's largest lender to around 28.9%.
CME Group futures now suggest a near 75% chance of a 75 basis point rate cut from the Fed following its two-day meeting on March 18, a move that would take the official Fed Funds rate to a range of 0% to 0.25%.
That pushed benchmark 10-year U.S. Treasury bond yields to a fresh record low of 0.318% in overnight trading, before the notes pared that rally to around 0.40% amid the steepest single-day decline since 2009.