It’s another one of those crisis-era programs, GFC1, the Fed probably hopes you never think too much about. Almost nobody noticed while the thing was operational. It was called the Supplementary Financing Program (SFP) which was thought up and initiated during the middle of September 2008 just two days after Lehman Brothers and AIG. Its purpose was, unbelievably, to drain [...]
It used to be that at each quarter’s end the repo rate would rise often quite far. You may recall the end of 2018, following a wave of global liquidations and curve collapsing when the GC rate (UST) skyrocketed to 5.149%, nearly 300 bps above the RRP “floor.” Chalked up to nothing more than 2a7 or “too many” Treasuries, it [...]
For several weeks now, the Federal Reserve has launched one bazooka after another. Officials there keep reassuring the markets, and the public, they’ve got an unlimited toolkit. However, the fact that they feel it necessary to keep showing you is a warning sign, especially how quickly each one is forgotten and overshadowed by the latest Big New Thing. The reason [...]
Despite the name, the Fed doesn’t actually intervene in the US$ repo market. I know they called them overnight repo operations, but that’s only because they mimic repo transactions not because the central bank is conducting them in that specific place. What really happened was FRBNY allotting bank reserves (in exchange for UST, MBS, and agency collateral) only to the [...]
They remain just as confused as Richard Fisher once was. Back in ’13 while QE3 was still relatively young and QE4 (yes, there were four) practically brand new, the former President of the Dallas Fed worried all those bank reserves had amounted to nothing more than a monetary head fake. In 2011, Ben Bernanke had admitted basically the same thing. [...]
Jay Powell’s disastrous week is coming to a close, not yet his long nightmare. He has been battling fed funds (meaning repo) for his entire tenure dating back to February 2018. This week wasn’t the conclusion to the contest, just the latest and biggest round of it. According to DTCC, the GC repo (UST) rate came back down to 1.975% [...]
According to DTCC's repo #s, there's a good chance fed funds was outside the range today, too. It was put at 3% this afternoon despite this morning's FRBNY operation, which is still higher than Monday when EFF sat right at the upper bound. https://twitter.com/JeffSnider_AIP/status/1174425376048787457 In case it wasn't clear, I was being sarcastic in the tweet above. Despite these being [...]
Before the repo rumble this week, Federal Reserve Chairman Jay Powell wanted to coast into a second rate cut on the comforting breeze of his insurance rhetoric. No longer one and done, that’s done, a second straight cut would be more consistent with a more forceful yet unnecessary policy response. Again, his publicly stated view is that the US needs [...]
What’s transmission got to do with it? An odd question perhaps, but not when you step back and think about everything you’ve been taught or told about when it comes to this stuff. From the very beginning, they tell you unequivocally how the Fed is in the middle and everyone must simply obey. It does things with its printing press [...]
There is one additional important point to note in all this repo uproar. Why did the Fed conduct the overnight repo operation this morning? The answer isn’t what you might think. It sounds like officials particularly at the Open Market Desk sounded the alarm about repo and the FOMC forcefully responded. And if you think that, policymakers would be beyond [...]
Stay In Touch