Ruck This?

After Monday and Tuesday's repo "ruck" in which major o/n, repo and GC rates spiked to 10%, and the Fed had to intervene to the tune of a $78bln repo injection to prevent repo seizure....

The Nattering One muses...  With 70% probability of a Fed cut, the market decided to raise rates in anticipation?  We know quarter end is coming, but isnt' it a bit early for window dressing?..

"Repo allows banks to deflate balance sheets at reporting time, hence the window dressing, underestimated leverage ratio, diminished prudential usefulness for such, and the Q End ruck for liquidity."- Reserves, RRP and The Libor Squeeze?

Is somebody in the exclusive club, US Commercial Bank, a bit early in tapping their "reserves" or "deposits" for quarter end turn premium?

An overnight RRP transaction shifts some of the liabilities on the Federal Reserve’s balance sheet from deposits held by depository institutions (also known as bank reserves), to reverse repos while the trade is outstanding. In the process, the participants "deposits" or reserves get drawn down, viz CASH balances at the Fed rise, and systemic CASH liquidity for others gets scarce?

How about the $800 bln in UST's coming down the pike? The US Treasury understood the impact of its fiscal operations on money markets long before the Fed was created. When T-Bills get purchased and/or flow to fund TGA balances at the Fed, bank deposits and reserves get drained just like an o/n RRP.  And of course quad witching is this Friday?

IMHO, perhaps a little of all the above, but it's not reserve scarcity, as we Nattered on Monday...

"a dearth of dollar "liquidity" stemming from a dearth of dealer balance sheet capacity, could turn into a major sh*t show and soon." 

Dealers who need to fund their bloated UST holdings by borrowing cash in repo, help blow GC rates out. But that's not all, the spike in rates was YUGE, a 35 standard deviation move proving that everything has its SEASON, and TIMING is everything, from August 12th.... 

"Seasonal monetary flow factors were already set to collapse into the 2nd half. Additional liquidity drains: TGA restock, $1T UST issuance by YE."

And now this...

"We believe the pressure in repo is mostly related to balance sheet scarcity rather than reserve scarcity.
Repo intermediaries do not have the balance sheet capacity to accommodate the demand for financing." @Barclays

— R. Christopher Whalen (@rcwhalen) September 17, 2019

At least The Nattering One is in good company?  One can only hope this "ruck" has nothing to do with LCR upgrades? AKA CB's park mortgage loans at FHLBs as collateral against advances, use proceeds from CLO to buy HQLA.

Above, U.S.-chartered depository institutions; FHLB advances; liability. Level = $570 bln, the duration on 68% or $387bln of those FHLB Advances are less than one year. A liquidity transmogrification or laundering duration mismatch?

Is FHLB credit compromised? If so all hell could break loose with the MMF's, non banks, foreign banks, dealers viz. a market making meltdown ala Chernobyl.

Re: this afternoon's FOMC announcement... If the Fed hands out more liquidity crack or cut's, a temporary updraft possibly to new highs, and when that high wears off?  If the Fed stays pat, disappointment and a down draft.  Either way, there is one guaranteed result, a surfeit of boneheaded Tweet's from certain individual's who have lost the plot.

BONUS: FFR cut -25bps to 2.00 - 1.75; IOER cut -30bps to 1.80; REPO cut -30bps to 1.70; Primary Credit cut -25bps to 2.5

More to come, stay tuned, no flippin.

Recommended Reading:
What The Ruck? (Liquidity)
Reserves, RRP and The Libor Squeeze?