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Statement Regarding Repurchase Operations

newyorkfed.org

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Re: Statement Regarding Repurchase Operations

#51

Post by ajmurmann »

hsnewman wrote: post #45
opportune wrote: post #25

Earlier quoted context omitted.

Why is there such a liquidity crunch though? And why is the fed stepping in when the liquidity crunch could just correct itself via market mechanisms - if the market rate for overnight lending was 9% I assume plenty of organizations would race to take advantage of that Aside from something that would just naturally correct itself (lenders being temporarily short on cash due to some statistical anomaly), the only expl…

I read that the cause was that companies were taking money out to pay their quarterly taxes.

Wouldn’t that be a regular occurrence and thus non-news? Is everyone looking for recession fear mongering material?

Re: Statement Regarding Repurchase Operations

#52

Post by hn_throwaway_99 »

ajmurmann wrote: post #51
hsnewman wrote: post #45

Earlier quoted context omitted.

I read that the cause was that companies were taking money out to pay their quarterly taxes.

Wouldn’t that be a regular occurrence and thus non-news? Is everyone looking for recession fear mongering material?

The headline says they're conducting repo operations until Oct 10 which is 3 weeks out, so obviously it's something more that just quarterly tax payments.

Re: Statement Regarding Repurchase Operations

#53

Post by nugget »

opportune wrote: post #25
spiantino wrote: post #19

Earlier quoted context omitted.

I don't think that's whats happening. Basically, in a repo you have one party posting a treasury bond as collateral and being lent the equivalent amount of cash. There's an interest rate you're charged on the cash, and potentially a "haircut" on the amount of cash relative to the value of the bond that a bank might take if they decide the other party is a risk and they want more collateral posted. What you're describ…

Why is there such a liquidity crunch though? And why is the fed stepping in when the liquidity crunch could just correct itself via market mechanisms - if the market rate for overnight lending was 9% I assume plenty of organizations would race to take advantage of that Aside from something that would just naturally correct itself (lenders being temporarily short on cash due to some statistical anomaly), the only expl…

Quarterly taxes seems to have been the initial cover story. My guess is it ties back partially to the eurodollar carry trade. There is an unprecedented amount of international rate and currency arbitrage going on which has pulled US dollars out of the US and could easily manifest unintended macroeconomic consequences like this. One day repo is easy for the Fed to address but if it persists then it becomes a confidence issue and people to start wonder: is this just the tip of the iceberg? If the underlying cause really is a systemic imbalance of sufficient magnitude, then who knows what else could pop up. It's more likely to signal major problems in the economies that are importing dollars (Europe in particular but also Asia) than the US itself, but a meltdown is bad for everyone; this uncertainty may be what some traders are starting to hedge against.

Re: Statement Regarding Repurchase Operations

#54

Post by whatok »

opportune wrote: post #25
spiantino wrote: post #19

Earlier quoted context omitted.

I don't think that's whats happening. Basically, in a repo you have one party posting a treasury bond as collateral and being lent the equivalent amount of cash. There's an interest rate you're charged on the cash, and potentially a "haircut" on the amount of cash relative to the value of the bond that a bank might take if they decide the other party is a risk and they want more collateral posted. What you're describ…

Why is there such a liquidity crunch though? And why is the fed stepping in when the liquidity crunch could just correct itself via market mechanisms - if the market rate for overnight lending was 9% I assume plenty of organizations would race to take advantage of that Aside from something that would just naturally correct itself (lenders being temporarily short on cash due to some statistical anomaly), the only expl…

Few thoughts:

An increase in ON repo was expected but the magnitude of it was not. What makes the most sense is that there was a large amount of leverage that was dependent on rolling ON repo financing. Reserves are not as abundant as thought due to various financial regulations and also are not evenly distributed. The distribution matters a lot because some desks that may have been more ready/able to lend may not have had the reserves and I guess vice versa.

Re: Statement Regarding Repurchase Operations

#55

Post by jVinc »

LocalTrust wrote: post #9

Wow this is not good. Repo market is the market of overnight debt between banks. Banks lend money to each other to cover their collateral needs/exposures at the end of each day. If banks lose confidence in each other, they start demanding more collateral from each other in the overnight market, which means the overnight rate goes up. The NYFed is trying to keep interest rates down and is having trouble doing it. As a…

So in that situation, the banks are basically in a position where raising their rates (which earns them more) will lead to the feds covering more and more of that? What's to stop them from collectively playing chicken against the feds, while shoveling money into the bag until it becomes ridicules? I mean normally I'd expect a business being close to bankruptcy being told by an investor "This simply cannot happen, I will inject money indiscriminately until you float!!" will start looking for money dumps like buying verbs from CEO's, not opportunities to actually bring the business back in good standing.

Re: Statement Regarding Repurchase Operations

#56

Post by whatok »

hn_throwaway_99 wrote: post #52
ajmurmann wrote: post #51

Earlier quoted context omitted.

Wouldn’t that be a regular occurrence and thus non-news? Is everyone looking for recession fear mongering material?

The headline says they're conducting repo operations until Oct 10 which is 3 weeks out, so obviously it's something more that just quarterly tax payments.

The reason why they're doing that is because they need to restore confidence to the market. The absolute worst thing the Fed could do is do what they did this week, say everything is all good, and then something even worse happens in the near future.

Re: Statement Regarding Repurchase Operations

#57

Post by o-__-o »

motohagiography wrote: post #22

What is the asset banks are so worried their counterparties have on their balance sheets that they need a Fed repo operation? Couldn't be stuff like a $500m personal loan to a startup CEO, secured by said CEOs stock in a private company that has negative cash flow and no real assets, which he also happens to control? Surely there is no reason to doubt the quality of collateral like that. But more seriously, legit que…

>Couldn't be stuff like a $500m personal loan to a startup CEO, secured by said CEOs stock in a private company that has negative cash flow and no real assets, which he also happens to control? Surely there is no reason to doubt the quality of collateral like that.

As a startup CEO with available stock, an actual positive cash flow and no _real_ assets.. please tell me where I can apply for this type of loan? Because all the loans I'm looking at are 3-8% interest and requires me to sign over my personal assets as collateral in return for a paltry $250k. I'd rather use that loan to just buy more real assets for myself instead (which is what I am doing)

Re: Statement Regarding Repurchase Operations

#59

Post by hourislate »

ajmurmann wrote: post #51
hsnewman wrote: post #45

Earlier quoted context omitted.

I read that the cause was that companies were taking money out to pay their quarterly taxes.

Wouldn’t that be a regular occurrence and thus non-news? Is everyone looking for recession fear mongering material?

Sept 15 was tax day. Companies withdrew money they had in the market to pay taxes. It is a regular occurrence every year, but this year it was a problem because the FED tightened. They assumed 1 trillion would have been enough but now are looking for the correct amount buy adding money.

They are still trying to figure it out.

Re: Statement Regarding Repurchase Operations

#60

Post by motohagiography »

o-__-o wrote: post #57
motohagiography wrote: post #22

What is the asset banks are so worried their counterparties have on their balance sheets that they need a Fed repo operation? Couldn't be stuff like a $500m personal loan to a startup CEO, secured by said CEOs stock in a private company that has negative cash flow and no real assets, which he also happens to control? Surely there is no reason to doubt the quality of collateral like that. But more seriously, legit que…

>Couldn't be stuff like a $500m personal loan to a startup CEO, secured by said CEOs stock in a private company that has negative cash flow and no real assets, which he also happens to control? Surely there is no reason to doubt the quality of collateral like that. As a startup CEO with available stock, an actual positive cash flow and no _real_ assets.. please tell me where I can apply for this type of loan? Because…

https://www.bloomberg.com/news/articles/2019-09-19/neumann-s...
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