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GC At 2 bps Means Repo-IOER Carry Is Dead: Long Live FX Carry

Tyler Durden's picture





 

As we discussed extensively last week, the Repo-Excess Reserve is now officially dead: the O/N GC rate just printed at a ludicrously low rate of 2 bps confirming that the Fed's future attempts to normalize the short end will be very entertaining to watch. A bigger problem is that now banks which previously had this "free money" trade to rely on for guaranteed Fed-funded profits are now straight out of luck.

Which means that the only carry trade is the tried and true FX funding trade: short crap currencies where there is no chance of a rate hike for years (such as the dollar and Yen) and go long currencies of growing developing countries whose central banks are tightening.

The chart below says it all, and explains why the Fed is between a rock and a hard place: a surge in the dollar will kill the market.

Source: Reuters

 


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Mon, 04/11/2011 - 11:13 | Link to Comment ZeroPower
ZeroPower's picture

 ludicrously rate of

Low:)

Mon, 04/11/2011 - 11:17 | Link to Comment SheepDog-One
SheepDog-One's picture

Dollar rises=kills the markets. Dollar falls=kills the markets.

So now we get to watch as the FED tries to lock the dollar right here at 75, and everyone piles on the dollar short? Oh this should be fun!

Mon, 04/11/2011 - 11:27 | Link to Comment Cursive
Cursive's picture

@SDO

This raft of Medusa carries no life vests.

Mon, 04/11/2011 - 11:25 | Link to Comment ghostfaceinvestah
ghostfaceinvestah's picture

Fuck me, another $8B printed today.

And people wonder why oil is at $112+.

Mon, 04/11/2011 - 11:26 | Link to Comment SheepDog-One
SheepDog-One's picture

The Maniacal Monetizers just cant stop. 

Mon, 04/11/2011 - 11:30 | Link to Comment SheepDog-One
SheepDog-One's picture

And then right on cue the US LOLlar dips back down to 74's.

Mon, 04/11/2011 - 11:37 | Link to Comment plocequ1
plocequ1's picture

Who cares? The 4 Fed dudes will press the up button and the market will go up. The bill will be paid by us " Gringos". Rally on. 

Mon, 04/11/2011 - 12:02 | Link to Comment sockcutter moto...
sockcutter motorforker's picture

i wonder how long it will be until the g7 intervenes again...

Mon, 04/11/2011 - 12:04 | Link to Comment equity_momo
equity_momo's picture

And herein is planted the seed for the next market dislocation : the carry trade unwind. 

Goody goody gumdrops.

Mon, 04/11/2011 - 15:01 | Link to Comment AldoHux_IV
AldoHux_IV's picture

This is another way of saying QE has just become perpetual.

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