(Recasts with Repo rate, adds context)
By Karen Brettell
Dec 30 (Reuters) - The cost to borrow funds in the U.S. overnight repurchase agreement market (repo) was steady on Monday ahead of the crucial year-end period when banks and investors reduce risk taking.
The New York Federal Reserve has been injecting liquidity into the repo market in order to reduce the chance of funding stress, after a flare-up in September sent the cost of overnight loans as high as 10%, more than four times the Fed’s rate at the time.
The Fed’s repo operations, however, are made only with major dealers, with the banks in turn passing liquidity on to their clients.
This could lead some clients struggling to raise funds over the year-end period if banks cut back lending.
There were no initial indications of stress on Monday, as the overnight cost of obtaining loans backed by Treasuries was steady at 1.55%.
The Fed’s 15-day repo operation was also undersubscribed, seeing only $8.30 billion in bids.
Reporting by Karen Brettell; Editing by Catherine Evans