Institutional Analysis: Federal Reserve Bond Purchase Tools Ease Year-End Repo Rate Expectations

Institutional analysis indicates that the market expects the Federal Reserve's new financing plan to ease seasonal funding pressures. After the Federal Reserve announced last week that it would purchase short-term Treasury bills, the pricing in the repo market for the year-end period (December 31 to January 2) dropped significantly. Bob Savage, an executive at BNY Mellon, stated that the Federal Reserve aims to avoid sharp interest rate fluctuations on tax days or at year-end, and it is not expected to repeat the volatility seen in 2019. Analysts pointed out that the Fed's bond purchases may reduce private investors' demand for Treasury bills in 2026, thereby supporting bond prices and lowering yields.