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The Fed has used repo transactions since the 1920s to manage the quantity of reserves held by commercial banks. The resulting urgency to settle - present on both sides of the market - makes repo rates susceptible to changes throughout the day as the relative amounts of needed borrowing and lending evolve. Cash borrowers such as securities dealers often purchase securities counting on obtaining the necessary funding in the repo market. Cash lenders (mainly MMFs) have limited alternatives for same-day investments. Most activity in the repo market each day cannot be delayed to future dates. Treasury securities is so liquid: Reported financing transactions averaged nine times the average settlement of Treasury coupon auctions. These data help explain why the market for recently issued U.S.
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While the full size of the repo market is not precisely known, the Federal Reserve Bank of New York tallies a large share of the trades every business day and publishes the information in its Markets Data Dashboard. In this Economic Brief, we explore the Fed's role in this market, focusing on the establishment of the two repo facilities and how they've changed the Fed's involvement in that market. The vast majority of repo transactions are based on standardized contracts that allow participants to conduct trades quickly and efficiently, leading to a highly liquid market. Hence, the name " repurchase agreement" or repo.
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Borrowers such as securities dealers treat the transactions as simultaneous sales and commitments to repurchase the securities (most often, the next day). Lenders such as money market mutual funds (MMFs) treat these transactions as loans collateralized with high-quality securities. Treasury and by government-sponsored entities (GSEs) is a critical part of the global financial system. The financing of debt securities issued by the U.S.
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