Wall Street firms and U.S. banks scrambled to raise cash on Wednesday, as U.S. financial markets resumed normal trading after a devastating storm pummeled the U.S. East Coast and closed major markets for two days.
Major banks and investment houses rely on the money markets - a key cash source for financial markets - to finance trading positions and loans that they make. Companies sell commercial paper and other short-term loans to money market funds and other investors fund their inventories and payrolls.
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The massive storm, Sandy, disrupted these markets, thinned trading and drove up borrowing costs on Monday and Tuesday.
But overnight borrowing costs in funding markets have since receded from those levels, which were last seen during the height of the global credit crunch in late 2008.
Investors charged a borrower 0.35 to 0.40 percent for an overnight loan in the repurchase agreement (repo) market early Wednesday, analysts and traders said.
This was sharply lower than the 1.25 percent heard quoted late on Monday before Sandy made landfall in the U.S. Northeast. The storm knocked out power for about 8 million people and flooded the New York subways.
Traders at banks and other institutions rushed to raise money Monday and Tuesday to insure their trades were funded at least through Wednesday, when they had expected the stock and bond markets to reopen.
"It's not as bad as it could have been, but people are still operating with skeletal staffs," said Mike Lin, director of U.S. funding with TD Securities in New York.
On Friday, the overnight repo rate ended at 0.20 percent.
In the $1.8 trillion tri-party repo market, a borrower obtains cash from investors by pledging Treasuries and other securities as collateral. (Editing by Bernadette Baum)