Here is another good writeup assuming you aren't too familiar with the repo markets
https://www.forexlive.com/news/!/lets-talk-about-the-repofun...
Why the Federal Reserve is pouring money into the financial system
21–30 of 110 posts
Re: Why the Federal Reserve is pouring money into the financial system
#22How can reserves be too low when there are $1.4 T in excess reserves? How can repo rates spike to nearly 10% when the interest earned on those $1.4 T reserves only yields 1.80%? edit: more questions. As I understand it, the "repo market" is broader than only banks. Why is it that the Fed performing repo operations will alleviate the liquidity issue in the repo market, unless it is some such bank borrowing in the repo…
I'd recommend for you to listen to the Bloomberg Odd Lots podcast from 15 April 2019 - it had Zoltan Poszar from Credit Suisse on to talk about the general trend in the money markets (and he was worried about something like this happening back then too), and quite a few of your questions should be answered by the time you're done. Here's the link (it's also available on Apple Podcasts)- https://www.bloomberg.com/news…
Anything Zoltan on money markets is highly recommended. I think Bloomberg had him live at some event last night that was recorded.
Re: Why the Federal Reserve is pouring money into the financial system
#23Re: Why the Federal Reserve is pouring money into the financial system
#24Here's a question. Is there any reason to believe USD is a good investment right now?
I had a conversation with someone who was quite confident we are undergoing deflation because most money is digital and not real.
Is there any chance this person has a point?
Re: Why the Federal Reserve is pouring money into the financial system
#25To reduce OPEC Oil price for Importers?
Re: Why the Federal Reserve is pouring money into the financial system
#26How can reserves be too low when there are $1.4 T in excess reserves? How can repo rates spike to nearly 10% when the interest earned on those $1.4 T reserves only yields 1.80%? edit: more questions. As I understand it, the "repo market" is broader than only banks. Why is it that the Fed performing repo operations will alleviate the liquidity issue in the repo market, unless it is some such bank borrowing in the repo…
Because those reserves are locked up for regulatory reasons and they're also not evenly distributed.
Re: Why the Federal Reserve is pouring money into the financial system
#27Earlier quoted context omitted.
I'd recommend for you to listen to the Bloomberg Odd Lots podcast from 15 April 2019 - it had Zoltan Poszar from Credit Suisse on to talk about the general trend in the money markets (and he was worried about something like this happening back then too), and quite a few of your questions should be answered by the time you're done. Here's the link (it's also available on Apple Podcasts)- https://www.bloomberg.com/news…
Anything Zoltan on money markets is highly recommended. I think Bloomberg had him live at some event last night that was recorded.
Please share the link if you have it!
Re: Why the Federal Reserve is pouring money into the financial system
#28How can reserves be too low when there are $1.4 T in excess reserves? How can repo rates spike to nearly 10% when the interest earned on those $1.4 T reserves only yields 1.80%? edit: more questions. As I understand it, the "repo market" is broader than only banks. Why is it that the Fed performing repo operations will alleviate the liquidity issue in the repo market, unless it is some such bank borrowing in the repo…
$1T of that is locked up in effectively mandatory reserves on account of regulations. https://www.stlouisfed.org/on-the-economy/2019/march/banks-d...
Quite, these are not 'excess' reserves, they are just reserves.
Re: Why the Federal Reserve is pouring money into the financial system
#29I thought the Financial Times had a more in-depth analysis of the structural reasons behind the spike in the REPO market than I've seen elsewhere. I've seen a few sources point out the tax payment due on the 15th, and the settlement of a large treasury sale, but as the article says: "...Analysts say these two things alone should not cause the deep cracks in the repo market that we have seen this week. The underlying…
My understanding is that Treasury took in an additional 80+ in cash against their stated goal of having 350B cash on hand (by quarter end I think). Obviously this is a very large draw of liquidity out of the system and is likely the single biggest reason for the squeeze.
Not quite 2/3 of collateral at the Fed operations has been treasuries the rest mortgage paper with a tiny amount of agencies.
The financial system/world runs on repo and it is troubling this is happening at all. My gut is Mnuchkin knew this would happen and is trying to force the Fed into backdoor easing through another round of QE before gradually releasing the cash back into the system by slightly lower than expected issuance of new debt.
Re: Why the Federal Reserve is pouring money into the financial system
#30The money absolutely impacts the economy and the individual. If the fed were not providing this printed money to the banks, the banks would need to do some combination of the following to increase liquidity:
1) Increase interest rates to attract new deposits
2) Sell assets — such as foreclosed homes now in the banks possession
With house prices at all time highs and interest rates at all time lows, both 1&2 sound great to me and absolutely have a direct impact on me.