Are Some TOMOs Now POMOs?
Rob Kirby wrote about open market operations for Financial Sense Online. He explains there are kinds of operations or REPOS:
POMO – Permanent Open Market Operations
and
TOMO – Temporary Open Market Operations
These TOMO purchase and resale agreements [hence the name Repo] typically range in duration from 1 – 14 days. A one day Repo would have the Fed purchase collateral [Treasury Bond, Agency Bond or Mortgaged Backed Sec.] from the dealer’s inventories TODAY [at an implied yield] and have them sell it back to them tomorrow. This provides the dealer with temporary [overnight – 14 days] cash to fund their businesses.
Ron explains, “if the Fed conducted 12 billion in 14 day Repos on Thursday and followed that up with 38 billion of over-the-weekend Repos on Friday – then the net aggregate add would be 50 billion worth of ‘new cash’ in the banking system that did not exist on Wednesday.”
My friend in Bend, says the average TOMO, recently, has averaged $9B per day, so he suggests I not get too excited when I see large TOMO repos. I did notice that today, Thursday Nov. 1st, the FED conducted a
one-day $12 Billion TOMO and a seven-day TOMO for $21 Billion (for a Weighted Average interest of 4.64%), and $8 Billion repo for 14 days.
Curious I looked at
Thursday, Oct. 25th: one day $6 Billion, 7 days for $19 Billion, and $6 Billion for 14 days.
Oct. 18th: one day $3.25 Billion, $19 Billion for 7 days, and $6 Billion for 14 days.
Oct. 11th: $9.5 Billion for one day, $20 Billion for 7 days, and $6 Billion for 14 days.
Oct. 4th: $24 Billion for 7 days, $4 Billion for 14 days.
Sept. 27th: $5 Billion for one day, $20 Billion for 7 days, $6 Billion for 14 days.
Sept. 20th: one day for $3 Billion, $19 Billion for seven days, and $7 Billion for 14 days.
Sept 13th: $5 Billion for one day, $11 Billion for seven days, and $5 Billion for 14 days.
Sept. 6th: $8.25 for one day, $16 Billion for 7 days, and $7 Billion for 14 days
To me it appears that the 7-day $20 Billion and 14 day $6 Billion TOMOs are POMOs. This might signal the problems in the mortgage backed securities is far from over Or as Kirby points out in his article “debt paper that was formerly ‘readily fungible’ quickly became illiquid.” It appears it is still illiquid!
Rob Kirby FED open market operations Mover Mike
Update:
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