Dollars and Jens
Wednesday, February 27, 2008
Another Term Auction
The fed auctioned another $30 billion for 28 days, this at 3.08%. Secondary sources I've read focus on the fact that the rate at the auctions has been coming down, but I'm more interested that it came in that high; the minimum bid allowed was 2.81%, as that was the average market-expected fed funds rate for those 28 days, a premium of 27bp; earlier this month an auction came in at 3.01% with a minimum bid at 2.86%, and the one before that executed only 2.3bp above the forward rate. It seems a bit disconcerting to me that $30 billion worth of borrowers think it's a good deal to borrow at 27bp above the average rate at which private banks will be lending to each other; are they paying 27bp above the average for overnight funds, or are they feeling risk averse?

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