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Liquidity Shortage Getting Worse: Fed’s Repo Oversubscribed As Funding Demand Soars 50% Overnight

Tyler Durden
September 18th, 2019
ZeroHedge
Comments (9)

This article was originally published by Tyler Durden at ZeroHedge. 

20 minutes after today’s repo operation began, it concluded and there was some bad news in it: as we feared, yesterday’s take-up of the Fed’s repo operation which peaked at $53.2 billion has expanded substantially, and according to the Fed, today there was a whopping $80.05BN in bids submitted, an increase of $27 billion, or 50% more than yesterday.

It also meant that since the operation – which is capped at $75BN – was oversubscribed by over $5BN, that there were one or more participants who did not get up to €5 billion in the critical liquidity they needed, and that the Fed will see a chorus of demands by everyone (because like with the discount window, nobody will dare to be singled out) to either expand the size of its operations, implement a fixed operation and/or – most likely as per the ICAP note yesterday –  transition to permanent open market operations, i.e. QE

By comparison, this is what yesterday’s repo operation looked like:

What is immediately notable is that except for agency paper, there was greater use of both Treasury ($40.9BN to $51.6BN) and Mortgage-backed ($11.7BN to $27.8BN) collateral. The only silver lining: the step out rate on agency paper dropped from 3.00% to 2.1% however with virtually nobody using that, it is a largely meaningless easing in terms.

Finally, the worst news is that immediately after the operation, overnight repo remained elevated, with Reuters reporting the rate was 2.25%-2.60% after the latest repo operation, confirming that the liquidity shortage continues with the high end of repo still far above fed funds.

Yesterday’s Fed repo operation – the first direct liquidity injection in a decade – was an unmitigated disaster, with the NY Fed forced to cancel it in the middle due to “technical difficulties” which nobody still knows what they were, only to resume it moments later. All we can say is that today the Fed better not fuck this up again, especially with New York Fed President John Williams, senior vice president of market operations Lorie Logan and first vice president Michael Strine all expected to be in Washington for the Fed’s two-day central bank meeting.

In any case, moments ago the NY Fed announced that, as expected, today’s repo operation started at 8:14 am as expected, with the repo rate trading quite elevated around 2.80% and the SOFR trading bizarrely above 5%

  • Overnight U.S. Funding Rate at 2.8%, Elevated for a Third Day
  • *SECURED OVERNIGHT FINANCING RATE JUMPS TO 5.25%

With such mindboggling volatility, SOFR will certainly make a “great” LIBOR replacement.

Check back here at 830 am ET for the results; it will be interesting if the total uptake today is over yesterday’s $53BN – that will suggest that the problem is getting worse, not better…

 

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Author: Tyler Durden
Views:
Date: September 18th, 2019
Website: https://www.zerohedge.com

Copyright Information: This content has been contributed to SHTFplan by a third-party or has been republished with permission from the author. Please contact the author directly for republishing information.

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9 Comments...

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  1. rellik says:

    “In the repo market, banks and Wall Street dealers use securities as collateral to obtain cash from money market funds and other cash investors.”
    I’m going to play Stew here,
    WTF????????????????
    I’m really careful with my investments.
    I will survive, will you?

    • Stuart says:

      Wrong kind of Stew rellik 🙂
      I suspect the dealers are getting greedy due to low rates and aren’t keeping enough in their rainy day fund. It sure isn’t a good sign that the issue is growing. Hopefully the Fed will put a stop to this nonsense.
      You should be OK with your certificates of guaranteed confiscation since you are so short term. Otherwise, I’d start worrying about the Fed loosing control of rates.

  2. My matress is looking better and better.
    Or, mini-safes buried in the yard.
    Security provided by FMJ.

  3. Bert says:

    Yet Walled Street is expecting record corporate sales for 2019.

    Record Santa Claus rally begins 28 Octobre. Most of the tariffs that could affect the holiday sales season don’t start until 15 Dec, by then most of the sales are already logged in the books.

    You better hope China/US trade war doesn’t end, if it does, oil to $25, gold to $900, silver to $7 within 10 days of ending.

  4. Frank Thoughts says:

    The UK has had 7 quarters of credit contraction. That means, despite being a highly leveraged consumption and services economy, the access to credit to borrow for business investment or consumption has been shrinking.

    This means people have less money to spend on things and it is getting harder to borrow to start or grow a business: most jobs in the UK are created by small businesses.

    The UK’s only hope is to crash out of the EU, sharply devalue the pound, and then become the ‘bargain of the century’ to overseas investors and property buyers. On the plus side this means a flood of people from Hong Kong and India, dramatically improving the UK’s food and poon tang options.

    The UK will become an off-shore investment haven.

  5. I have a prepper question. I stocked up on water bottles(plasstic),and put them into storage. I went in to storage and found that the majority had lost water in them. There is no leakages in the bottles,so I’m trying to figure out what happened. Evaporated?

  6. D379-6754 says:

    Some possible causes:

    1) permeation
    The rate of transfer of the contained (liquid, gas, or vapor) in the container (solid).

    2) The storage conditions of the water .
    (High heat, moisture, etc.)

    3) Sub-standard materials used in the bottle construction, including the caps.

    4) Possible loose caps (thereby allowing premature evaporation).

  7. Thanks. Probably high heat issues. Live and learn.

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