[ad_1]
What is going on?
A flawless stay
Bloomberg reports hikes in the overnight rate hitting all-time highs.
US money market interest rates jumped for a second day on Tuesday as cash reserves in the banking system remained out of balance with the volume of securities listed on brokers' balance sheets.
Meanwhile, the effective federal funds rate has reached 2.25%, which is at the top of the Federal Reserve's target range of 2% to 2.25%.
The rate applied to day-to-day general collateral repurchase agreements increased by more than 600 basis points to 8.75%, based on ICAP pricing, before stabilizing at around 7.25%. Increases are only common in quarters and months, so market participants expect a return to normal.
On Monday, the GoC's overnight repo rate jumped 248 basis points to 4.75%, its highest level since December, according to ICAP pricing, between the settlement of Treasury bill auctions and the influx of quarterly corporate tax payments, perhaps compounded during last week's bond market sale, during which investors resold securities to brokers.
In addition, the secure overnight funding rate, which relies on day-to-day repo transactions with the CG, rose 2.4% to 2.43% on Monday, according to data from the New Fed. York. This is the highest level since July 31st.
Federal Reserve injects $ 75 billion into the financial system
The Financial Times reports that the US Federal Reserve is injecting billions into the financial system
TD Securities points to bank reserves.
"We believe that the culprit is the scarcity of bank reserves, which are the only asset that provides banks with intraday liquidity. Reserves have been declining since 2014 and we expect them to decrease as the treasury cash balance increases and the flow of money increases.. "
The Fed seems to have solved the problem no matter what with the injection of $ 75 billion. Repo rates are down for the moment.
Technical factors
One commented, "Analysts said there were technical factors that restricted the repo market rather than the systemic issues that had resulted in much higher overnight rates during the financial crisis." What are the technical factors now? ? "
Sometimes there is an end-of-month compression, but it happened on September 16 and again on September 17.
"This mid-month rise was attributed to a convergence of events that have unbalanced cash reserves in the banking system relative to the volume of securities on the bond market liquidation balance sheet, during which investors resold securities to brokers. "
Chris Whalen chime in
A flawless stay
Always crazy after all these years
A flawless stay
Theory of China
A flawless stay
Quadruple witch
We also have Quadruple Witching on Fridays.
The term "quadruple sorcery" refers to the third Friday of March, June, September and December. On these days, market index futures, options on market indices, stock options and equity futures expire.
Wall Street Journal chime in
The Wall Street Journal reports that the Fed is embarking on the pension market to control soaring rates
Scott Skyrm, a pension trader at Curvature Securities LLC, said he had attended a cash negotiation in the 9.25 percent pension rate on Tuesday. "It's just crazy that rates can go so high so easily," he said.
On his trading screens, Mr Skyrm said that he could see the traders with guarantees that they were trying to trade for money. The rates they proposed would start to increase until an investor with available liquidity began to accept their offers, gradually leading to lower repo rates until investors exhausted their liquidity, he said. Then, rates would resume their ascent.
Although technical factors explain the strong demand for cash this week, including the payment of corporate income tax, the settlement of recently issued Treasury securities and the end-of-quarter approach, they apparently did not seem to explain crazy market volatility, says Mr Skyrm.
"There seems to be something underlying that we are not aware of,Said Mr Skyrm.
Bottom line
Someone was in serious need of money and had it.
Mike "Mish" Shedlock
[ad_2]
Source link