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In a week in which the Federal Reserve’s Federal Open Market Committee delivered a rate reduction to the Fed funds rate, it wasn’t even the biggest news. Not by a long shot. That was about as expected as anything can get in financial markets.

Instead, what had investors’ attention was a money markets operation by the Fed that was a surprise and hadn’t been done since the financial crisis of 2008-09. From Tuesday through Friday the Fed injected about $75 billion of daily liquidity through repo operations, in order to stabilize short term money markets. The rate to borrow cash overnight using Treasury securities as collateral surged Tuesday to as high as 10% as the amount of cash available to lend was exceeded by the demand to borrow it.

The Fed added money in the repo market, leading to a decline in short rates, which had risen sharply above the Fed funds rate. The move calmed markets and reduced the rate that lenders were charging in the market for overnight repurchase agreements, or repos. In a repo trade, Wall Street firms and banks offer U.S. Treasuries and other high-quality securities as collateral to raise cash, often overnight, to finance their trading and lending activities. The next day, borrowers repay their loans plus what is typically a nominal rate of ...

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