Double Parked at The Eccles Building?
04/30/19, IOER at 2.40, is 6bps below BGCR and TGCR (collateral rates) at 2.46, 8bps below SOFR at 2.48, and 13bps below the Treasury GFC repo rate at 2.53
Meanwhile IOER at 2.40 is ABOVE all of the 1 through 7 yr bond tenors, and only 4bps below EFFR at 2.44, (at its highest since March 2008).
Fathom that for a moment, and remember double parking in IOER at the Eccles Building is not only permitted, but guaranteed. Ask your friendly Fed Window attendant for further details.
At a minimum, this would encourage banks to decrease their excess reserves and increase their holdings of T's, much less take some risks by getting back into the lending business. But then again, when has the FOMC ever been in front of the curve?
As the cost of short term loan funds continue to rise, (interest rates are NOT the price of money) things should get more and more interest-ing. Pun intended.
UPDATE 05/02/19: "The Board of Governors of the Federal Reserve System voted unanimously to set the interest rate paid on required and excess reserve balances at 2.35 percent, effective May 2, 2019."
Effectively cutting the IOER rate 5bps from 2.40 to 2.35, it's a start?
As of Friday March 22nd and for the 1st time since 2007: the 30, 90, 180 and 365 day rose above the 2, 3, 5, 7 and 10 year. - Something Eventually Has To Give?This means that as of 04/30/19 the 6 month 2.457; 10 yr 2.511 and 30 yr 2.943 are the ONLY tenors ABOVE EFFR 2.44, while the 10 and 30 are the ONLY tenors above SOFR 2.48, and the 30 stands alone above the GFC repo rate 2.53.
Meanwhile IOER at 2.40 is ABOVE all of the 1 through 7 yr bond tenors, and only 4bps below EFFR at 2.44, (at its highest since March 2008).
Fathom that for a moment, and remember double parking in IOER at the Eccles Building is not only permitted, but guaranteed. Ask your friendly Fed Window attendant for further details.
Parking reserves, excess or otherwise at a risk free and unencumbered 2.40 would seem to be a nice proposition? If the Fed really wants to light this candle, as discussed in Charlatanism: Quantity vs Quality? in order to spur more Type 1 transactions vs Type 2, the Fed should NOT lower FF (Fed Funds) rates.
Instead, the Fed should decrease IOER (Interest on Excess Reserves) remuneration, while increasing repo and RR (reverse repo) rates. This would kick the banks out of the guaranteed parking (saving) arb, and back into the business of lending. - Three Days Of The Condor?Considering that Fed window reverse repo rates are at 2.25, would it surprise anyone if the Fed decided to be proactive at this weeks meeting by cutting IOER 20bps to 2.20??
At a minimum, this would encourage banks to decrease their excess reserves and increase their holdings of T's, much less take some risks by getting back into the lending business. But then again, when has the FOMC ever been in front of the curve?
As the cost of short term loan funds continue to rise, (interest rates are NOT the price of money) things should get more and more interest-ing. Pun intended.
UPDATE 05/02/19: "The Board of Governors of the Federal Reserve System voted unanimously to set the interest rate paid on required and excess reserve balances at 2.35 percent, effective May 2, 2019."
Effectively cutting the IOER rate 5bps from 2.40 to 2.35, it's a start?
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