(Reuters) – Short-term borrowing costs held steady as three Fed liquidity operations were met with banks taking only a small portion of the amount offered ahead of the crucial year-end period, appearing to indicate the Fed may have headed off a funding squeeze.

Still, with one last hurdle to clear before the year’s end, markets were still anticipating some pick-up in overnight borrowing costs on Tuesday to bridge New Year’s Day, although estimates for how high rates might go are dramatically lower than just a few weeks ago.

“We’ve seen the rates over year end really collapse,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

“What it tells me is the Fed has flooded the market with liquidity ahead of year end to prepare for any shortfall in liquidity,” he said.

The New York Federal Reserve has been injecting liquidity into the repo market 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 are made only with major dealers, with the banks in turn passing liquidity on to their clients.

This could lead to 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%.

Tuesday’s operation, the last of the year, will see the Fed offer at least $150 billion overnight.

Forward repo markets are pricing overnight loans for year-end at around 1.95%, down from 2.50% earlier on Monday and from around 4% a few weeks ago, analysts said. Analysts at Wrightson ICAP wrote that they expect funding costs to be high at the start of Tuesday’s session but expect more than half of the year-end spike to be unwound on Thursday.

The rate got as high as 6.50% on Dec. 31 last year, which was more than double the then-Fed funds target range of 2.25% to 2.50%.

The Fed’s term and overnight repo operations drew solid demand on Monday, though it was well below the funds on offer.

An overnight operation had $30.80 billion in bids, from at least $120 billion on offer, and a one-day forward operation that matures on Jan. 2 drew $18.65 billion in demand, from at least $75 billion available.

A 15-day operation also drew $8.30 billion in bids, from at least $35 billion available.

“Repo is still at quite large dollar amounts for the year-end, and that’s partly because the Fed has accommodated so much, people have not had to cut back as much as they normally would,” said Jim Vogel, an interest rate strategist at FHN Financial in Memphis, Tennessee.

The New York Fed has pledged to continue its overnight and term repo operations through at least January.