As Repo Volumes Plunge And The GC-IOER Carry Trade Dries Up, One Third Of Treasury Repo Volume Is Now At Negative Rates

Tyler Durden's picture

Zero Hedge was the first to observe the curious phenomenon of the collapse in the General Collateral-IOER carry trade following the implementation of the FDIC assessment rate back in early April (discussed in depth here) which continues to force repo rates far below where they would ordinarily be (and is generating an undue amount of stress on short end rates, impacting money markets, repo, and other shadow economy components, and also substantially complicating an unwind by the Fed if and when one occurs). But that's not all. As Barclays' Joseph Abate points out, another consequence, which is rapidly becoming appreciate by repo market players, is that up to a third of all Treasury repo volume now trades at sub zero rates, making life for money markets a living hell, which perhaps that was the goal all along... And while the fails rates for the time being has not picked up substantially (liquidity is still ample although if the Fed continues to pummel the market with its foolhardy sale of Maiden Lane II securities this may change, more on this later), it does present a complication for the Fed, should Bernanke decided to halt securities reinvestment. Granted it appears this will not be a major worry at a time when some believe QE3 is a given, and others believe QE2 Lite will be precisely the ineffectual, yet critical reinvestment of maturity securities.


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youngman's picture

I better stockpile some booze..sounds like another party like its 1999 again to me....if the end of the world is here...I want to be drunk to see it....

Robslob's picture

Yes, that was me...junk.


Mercury's picture

Forcing money market funds farther out on the risk curve.


Urban Redneck's picture

Or just skipping the drawn out process of excess risk turning to excess loses, not passing GO, not collecting $200, and becoming the next Reserve Primary Fund by (negative yield) default because running a MM sucks when Uncle Sam is short buyers for his paper.

schizo321437's picture

Ugh you deleted the doomer post, stop trying to hide the God particle.


Okay it`s out there now.

AUD's picture

To make a long story short, is this article saying T-bills are trading above par?


AUD's picture

I know what a repo is, even a reverse! but since you seem to know so much, how about explaining these articles in 100 words or less?

LawsofPhysics's picture

Modern economics depends, to a large extent, on the velocity of many different types of paper and agreements to move said paper.  This paper, and this agreement seem to being getting stale, and may need to be discarded at a loss now or a bigger loss later.



AUD's picture

Yeah great, thanks for explaining nothing. What's the significance of negative repo rates?

firstdivision's picture

Sorry for the delay.  The basic answer is economic incentive.  Would you loan money to someone, and pay interest to them at the same time?

Ponziconomy's picture

The booze is always a good idea for comet watching; especially with Elenin. You'll have a much better chance of thinking you see it if you're hammered than actually seeing it with a pair of strong binoculars. 20+ million miles is calculated to be it's nearest passing point (10/16/11). A halibut in the Atlantic is liable to have greater influence over tides and tectonic shifts than anything this frozen dirtball will effect. I'd keep a closer watch on Comet Ben BurnYankee-- and definitely, keep the booze on hand for that outcome.

Problem Is's picture

The Rating System
If I think the facts and information Tyler or a guest post brought forward is important or beneficial... I give it +5...

Hopefully encouraging ZH to bring forth more along these lines...

If it is a pile of crap or propaganda... I give it +1...

This Post is Excellent Information
So out of 3 of you... 3.3?

Are watching Amerikan Idol or voting at a beauty contest? The information is ugly so you vote it down?

AldoHux_IV's picture

Would a synthetic way to play this be eurodollar futures?