The Devil's Dollar Sign?
Our unprecedented in depth coverage of the repo ruckus continues, following up on the Man With No Name in Part 5: A Dollar To Die For?...
To limit today's discussion in Part 6, as to NON-: banks, UST, Fedwire collateral, and IOER, specials, asset swaps, expansion of IBDD's or money supply, all Nattering for another day. Moving West...
This week's UST auctions at avg. 2.5X bid to offer; on settlement dates 10/24 $250bln, 10/29 $300bln and 10/31 $600bln avg. liquidity drain, speaking of which...
Moving West, with The Devil's Dollar Sign in mind...
The Committee reaffirms its intention to implement monetary policy in a regime in which an ample supply of reserves ensures that control over the level of the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve's administered rates, and in which active management of the supply of reserves is not required. - NYFRB Operating Policy Announcement 10/11/2019
Translated.. an extended schedule for future intervention, as they are ALL IN until January 2020 with $75 bln in daily ON repo, and $70 bln in TERM repo. Is this really GC repo in the traditional sense?
Au contraire, there are distinctions as the Fed normally engages only in Tri-Party (interdealer) repo and cannot deal directly with non banks. In that tradition, the Fed accepts Fedwire and non Fedwire collateral (less desirable) only from the 24 primary dealers (commercial banks), and credits the dealer accounts with reserves.
In addition, ALL IN until Q3 2020 with $60 bln monthly UST purchases, in addition to the existing reinvestment and rollovers. Hurray! QE5 has arrived?
Au contraire, there are distinctions, no toxic or less desirable collateral this time. The Fed will buy strictly short term (under 1 yr) UST bills (creme de la creme) only from primary dealers, and credit the dealer accounts with reserves.
To be sure, from that NYFRB statement above with added emphasis, a regime of ample reserves... to ensure that reserves remain ample (multiple times)... under which control over rates is primarily through the setting of the Federal Reserve's administered rates... and in which active management of the supply of reserves is NOT required."
Active management, NOT required, and certain distinctions are the key's here. To ensure that reserves remain ample by actively managing the supply of reserves, is exactly why the Fed is buying short term UST bills "QE" from, and engaging in o/n and term "repo" asset swaps ONLY with the primary dealers. Your boosting reserves, right?
But isn't active management exactly what the Fed said is NOT required? Excuse me, so ignore the very thing your boosting? This is not semantics, its a contradistinction from the verbiage in the Fed statement. Are these POMO's going to be passively made without regard for timing, impact or coordination with the US Treasury?
Oh wait, isn't that lack of coordination and forethought how we got into this repo ruckus in the first place? If active management of reserves is NOT necessary, coming full circle to the question originally posed: What's the real problem? and why is there Fed intervention?
Prior to the GFC, repo markets functioned on a paucity of reserves and collateral (albeit different regulatory capital requirements) as compared to today's increased Trillions in balances and float. The problem is dealers drawing down cash, reserve levels or a lack of HQLA UST collateral? Au contraire, there are distinctions...
As Nattered earlier 1) The Fed only engages in Tri-Party (interdealer) repo. 2) in FICC Bilateral DVP (delivery vs payment) repo, the liquidity demand is from NON dealers (all other financial institutions viz intermediaries). 3) the FED cannot lend money to non dealer counterparties. Outside of invoking emergency powers, it's illegal, but that never stopped them from paying IOER either?
Given the above distinctions, to whose DIRECT benefit is the Fed intervention in repo, or what good would come from a standing repo facility? If the NON dealers (non commercial banks with the liquidity needs) outside of the inner sanctum (FRB's, commercial banks) are not DIRECTLY benefiting from this Fed largess, what is and more so who might be the real problem?
There is something in this more than natural, something is rotten in Denmark, and you just can't make shit like this up, all come to mind. More to come when the Man With No Name returns in Part 7: The Million Dollar Bloodhunt? Stay tuned, no flippin.
Recommended Reading:
A Fistful Of Dollars?
For A Few Dollars More?
The Good, The Bad And The Ugly?
A Coffin Full Of Dollars?
A Dollar To Die For?
Impending Money Market Volatility Prompts Warning Light for LCR Tune-Up
Bank Regulations and Turmoil in Repo Markets
To limit today's discussion in Part 6, as to NON-: banks, UST, Fedwire collateral, and IOER, specials, asset swaps, expansion of IBDD's or money supply, all Nattering for another day. Moving West...
This week's UST auctions at avg. 2.5X bid to offer; on settlement dates 10/24 $250bln, 10/29 $300bln and 10/31 $600bln avg. liquidity drain, speaking of which...
"Wait a damn minute, let's get this straight, JPM and BofA drew down their cash levels by roughly $190 bln, prior to a widely anticipated surge in the demand for cash? ... per se, there is no paucity or surfeit of reserve or collateral UST... and it would seem there should not have been a paucity of cash either."The primary dealers drew down cash in anticipation of a surge in demand for such, the problem is not cash. So what is the real problem? Perhaps we can find it next to The Devil's Dollar Sign...
The Committee reaffirms its intention to implement monetary policy in a regime in which an ample supply of reserves ensures that control over the level of the federal funds rate and other short-term interest rates is exercised primarily through the setting of the Federal Reserve's administered rates, and in which active management of the supply of reserves is not required. - NYFRB Operating Policy Announcement 10/11/2019
Translated.. an extended schedule for future intervention, as they are ALL IN until January 2020 with $75 bln in daily ON repo, and $70 bln in TERM repo. Is this really GC repo in the traditional sense?
Au contraire, there are distinctions as the Fed normally engages only in Tri-Party (interdealer) repo and cannot deal directly with non banks. In that tradition, the Fed accepts Fedwire and non Fedwire collateral (less desirable) only from the 24 primary dealers (commercial banks), and credits the dealer accounts with reserves.
In addition, ALL IN until Q3 2020 with $60 bln monthly UST purchases, in addition to the existing reinvestment and rollovers. Hurray! QE5 has arrived?
Au contraire, there are distinctions, no toxic or less desirable collateral this time. The Fed will buy strictly short term (under 1 yr) UST bills (creme de la creme) only from primary dealers, and credit the dealer accounts with reserves.
To be sure, from that NYFRB statement above with added emphasis, a regime of ample reserves... to ensure that reserves remain ample (multiple times)... under which control over rates is primarily through the setting of the Federal Reserve's administered rates... and in which active management of the supply of reserves is NOT required."
Active management, NOT required, and certain distinctions are the key's here. To ensure that reserves remain ample by actively managing the supply of reserves, is exactly why the Fed is buying short term UST bills "QE" from, and engaging in o/n and term "repo" asset swaps ONLY with the primary dealers. Your boosting reserves, right?
But isn't active management exactly what the Fed said is NOT required? Excuse me, so ignore the very thing your boosting? This is not semantics, its a contradistinction from the verbiage in the Fed statement. Are these POMO's going to be passively made without regard for timing, impact or coordination with the US Treasury?
Oh wait, isn't that lack of coordination and forethought how we got into this repo ruckus in the first place? If active management of reserves is NOT necessary, coming full circle to the question originally posed: What's the real problem? and why is there Fed intervention?
Prior to the GFC, repo markets functioned on a paucity of reserves and collateral (albeit different regulatory capital requirements) as compared to today's increased Trillions in balances and float. The problem is dealers drawing down cash, reserve levels or a lack of HQLA UST collateral? Au contraire, there are distinctions...
As Nattered earlier 1) The Fed only engages in Tri-Party (interdealer) repo. 2) in FICC Bilateral DVP (delivery vs payment) repo, the liquidity demand is from NON dealers (all other financial institutions viz intermediaries). 3) the FED cannot lend money to non dealer counterparties. Outside of invoking emergency powers, it's illegal, but that never stopped them from paying IOER either?
Given the above distinctions, to whose DIRECT benefit is the Fed intervention in repo, or what good would come from a standing repo facility? If the NON dealers (non commercial banks with the liquidity needs) outside of the inner sanctum (FRB's, commercial banks) are not DIRECTLY benefiting from this Fed largess, what is and more so who might be the real problem?
There is something in this more than natural, something is rotten in Denmark, and you just can't make shit like this up, all come to mind. More to come when the Man With No Name returns in Part 7: The Million Dollar Bloodhunt? Stay tuned, no flippin.
Recommended Reading:
A Fistful Of Dollars?
For A Few Dollars More?
The Good, The Bad And The Ugly?
A Coffin Full Of Dollars?
A Dollar To Die For?
Impending Money Market Volatility Prompts Warning Light for LCR Tune-Up
Bank Regulations and Turmoil in Repo Markets
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