Today's "turn" Term Repo which matures on January 9 saw only $18BN in security submissions ($8.25BN in TSYs, $9.75BN in MBS), below the $35BN in total availability.

As such, this was the third term repo since the start of the Fed's emergency repo program that covered the year-end "turn" that was not fully overalotted.  As shown in the chart below, the first four "turn" term repos were all oversubscribed (boxed in red), while today's was the second "turn" repo that saw a less than full allotment.

As such, it now appears that banks have reached their fill of what they believe will be sufficient year-end liquidity, and all subsequent "turn" repos will likely see a lower allotment as the Fed's $500BN liquidity backstop bazooka ends up being underutilized, if not by much.

In his latest comment on the repo market, Curvature's Scott Skyrm noted that "once the term RP operations switch to being undersubscribed, it either means most of the Street's year-end funding need is fulfilled, or banks are close to their balance sheet limits." His full comment below:

The Fed took out the bazooka last Thursday and proposed to flood the Repo market with liquidity. If needed. That's the catch. The Primary Dealers might not take all of the cash the Fed is offering. Either they won't need it or they won't want it. So there are two scenarios as we get close to the end of the month. Either Primary Dealer banks do not take all of the Fed cash because their balance sheets are full or because they don't need the cash. Wrightson estimates that only $300 billion to $350 billion* of the ~$500 billion will be taken by the Primary Dealers. We can see whether the Fed RP ops are oversubscribed or undersubscribed by watching the results. Back on November 25, the $25 billion term RP operation to January 6 was oversubscribed by $24 billion. The $50 billion operation to January 17 on Monday was only oversubscribed by $4.25 billion. Once the term RP operations switch to being undersubscribed, it either means most of the Street's year-end funding need is fulfilled, or banks are close to their balance sheet limits.

This means that today's repo is either good news, or bad news: good news if banks don't need any additional liquidity for year end, but bad news if they are simply prevented from seeking more Fed reserves due to balance sheet limitations (and how many securities they can pledge), even as the overall funding in the repo market remains insufficient.