Maris Research

Treasury Yields Steady As Policymakers Consider Ways To Improve Liquidity

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The minutes of the late-April meeting of the policymaking Federal Open Market Committee, however, opened another possible change in the market for Treasuries—the permanent extension of the Foreign and International Monetary Authorities (FIMA) Repo Facility, which is currently set to expire in September.

The facility was set up at the end of March 2020 to relieve selling pressure from foreign central banks and other monetary authorities by accepting Treasury securities for repurchase agreements, giving them access to cash without having to sell.

According to the FOMC minutes:

Making the facility permanent might be a good idea, the policymakers concluded.

The Treasury Borrowing Advisory Committee went a step further in a presentation last month and suggested a permanent facility for a wide range of U.S. investors to enter repo agreements with the Fed. This type of facility would enable dealers to meet demand for liquidity in times of stress while relieving pressure on Treasuries.

Another idea floating around is to mandate a central clearing facility for Treasuries. This idea, championed by Stanford economist Darrell Duffie, would ease the capital restraints on bank-affiliated dealers, enabling them to increase the supply of liquidity, or eventually cut down on dealer intermediation.

Both ideas were among those proposed in a December

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