Reverse Repo
Yellen, You Have A Problem: The "Rate Hike Corridor" Just Broke
Submitted by Tyler Durden on 12/31/2015 16:52 -0500Moments ago the effective Fed Funds rate tumbled from yesterday's 0.35% to just 0.12%, confirming that indeed the rate hike corridor can and has been breached at least once, and only two weeks into the Fed's rate hike experiment.
Repo Experts Stumped: How Could Fed Hike Without Draining ANY Liquidity: "This Is A Market By Decree"
Submitted by Tyler Durden on 12/19/2015 12:04 -0500"The Fed didn't really drain any liquidity yesterday. They moved the IOER up to .50%, moved the RRP rate up to .25%, and the RRP volume came in at $105 billion, only $3 billion more than the day before. Where was the draining? But interest rates moved up anyway to reflect the tightening, without any fundamental change. Basically, the Fed decreed a rate tightening and the market moved rates higher.... I wonder how many economic interest rate models include "by decree" as a factor?"
In First Post-Hike Reverse Repo, Fed Removes $105Bn Liquidity From 49 Banks
Submitted by Tyler Durden on 12/17/2015 13:35 -0500In what appears to be an orderly process, The NY Fed's first Reverse Repo operation since The FOMC 'raised' rates released $105.185 billion of Treasury collateral to 49 banks at a rate 25bps, draining the same amount of system liquidity. This is being greeted as good news by many as no major disprutions appear to have occurred... aside from, of course, a 6bps plunge in long-end bond yields, 250 point drop in The Dow, and notable weakness in high-yield bonds. While some had feared up to $1 trillion would need to be withdrawn to achieve The Fed's goals, the size of this initial RRP suggests there is considerably less excess liquidty in the system than many would believe... indicating a notably more fragile system than we are being led to believe.
The Sellside Reacts To The First Rate Hike In Years: "It's Calm On The Floor"
Submitted by Tyler Durden on 12/16/2015 15:48 -0500While Yellen still speaks in her historic "first rate hike in years" press conference, the sellside has shares its kneejerk reaction to the Fed's announcement, and as Citi notes, "It’s calm on the floor considering the first rate hike in years. More attention on WTI crude, which remains 4% lower to 35.80 after DOE inventory build."
Fed Mouthpiece Reads Liftoff Tea Leaves
Submitted by Tyler Durden on 12/16/2015 14:57 -0500"When the Fed moves next will depend importantly on how inflation evolves. The Fed’s preferred measure of inflation has run below its 2% objective for more than three years. The central bank focused extra attention on the inflation outlook in its statement, saying it would “carefully monitor” actual and expected progress toward the goal. This point implied the Fed will be reluctant to raise rates again unless it sees inflation actually moving up. For now, officials said they were “reasonably confident” inflation would rise."
The Complete Fed Decision Preview: All You Need To Know
Submitted by Tyler Durden on 12/16/2015 13:50 -0500At 2 p.m. EST, the only thing the financial world will care about and discuss will be the Fed's [first rate hike in 9 years|epic disappointment]. So for those who still haven't made up their mind about what the Fed's [dovish|non-dovish] rate hike means, here is all you need to know.
How Traders Are Preparing For The Rate Hike: "It's A Good Time To Beat The Crap Out Of A Punchbag"
Submitted by Tyler Durden on 12/16/2015 13:25 -0500Summing up the anxiety ahead of today's Fed decision - which talking heads just this morning explained is "priced in" and is a "non-event... been so telegraphed" - market professionals believe "it seems a good time just to go and beat the crap out of a punchbag." As Bloomberg reports, real traders say they "just don't want to do any damage today," as they trade around the events, "I think we're going to see a lot of volatility," and Treasury risk is already spiking to 5-month highs.
Fed May Have To Drain As Much As $1 Trillion In Liquidity To Push Rates 25 bps Higher
Submitted by Tyler Durden on 12/16/2015 10:56 -0500"Of primary interest will be the size of the overnight reverse repo facility that the Fed will put in place to pull short rates higher. We don’t think it will be unlimited, but a size large enough that will keep short rates from falling below the 25bp floor – and the size could be as high as $1tn."
The Simple Explanation Why There Is No Such Thing As A "Dovish Rate Hike"
Submitted by Tyler Durden on 12/15/2015 10:26 -0500"For those who think Fed hikes are “good” for economic confidence, it would also be odd for the Fed to suggest, implicitly via a lowering of the dots that things were not quite so rosy. On balance the Fed therefore looks set for effectively “insisting” on their median dots – closer to a hawkish rather than dovish hike."
Futures Surge, Oil Rebounds As Fed Starts Historic Two-Day "Rate Hike" Meeting
Submitted by Tyler Durden on 12/15/2015 06:47 -0500The start of the Fed's most eagerly awaited two-day policy meeting in years has finally arrived with the market expecting Yellen to announce the first 25 bps rate hike in 9 years tomorrow with nearly 80% probability, and so far US equity futures are enjoying a last minute relief rally, while emerging market stocks rose for the first day in ten after the longest losing run since June. Europe's Stoxx 600 Index has also rebounded from a five-day losing streak, the worst in over four months.
December 16, 2015 - When The End Of The Bubble Begins
Submitted by Tyler Durden on 12/12/2015 21:00 -0500
Can the third great bubble of this century survive a Fed that finally wants to get off the zero bound after its way too late, but can’t do it anyway without a massive crash inducing cash drain from Wall Street? And in the teeth of the next recession to boot? Yes, the end of the bubble does begin on December 16th.
With One Week Left Until The Fed's Rate Hike, Nobody Knows If The Fed Can Actually Do It
Submitted by Tyler Durden on 12/10/2015 15:56 -0500We are less than one week away from a historic monetary experiment in two parts: first, attempt the Sisyphean task of pushing up the rate of interest on over $2.5 trillion in excess liquidity, and second, to assure the market that it has correctly priced in the overnight evaporation of up to $800 billion (or more) in liquidity from asset prices. If one or both of these fail to deliver, than the embarrassing disappointment that marked the ECB's December announcement and its dramatic impact on asset prices and FX levels, will be a walk in the park compared to "disappointment" that the Fed will unleash once the market realizes that while in theory the Fed can and is ready to hike, it simply can't do so in practice.
Higher Interest Rates and Debt Reduction in 2016? Maybe...
Submitted by rcwhalen on 12/10/2015 07:18 -0500The Fed & ECB are spawning the next crisis....
"But It's Just A 0.25% Rate Hike, What's The Big Deal?" - Here Is The Stunning Answer
Submitted by Tyler Durden on 12/03/2015 23:59 -0500"QE2 moved Repo rates, on average, 2.7 basis points for every $100B in QE. So, one very rough estimate moved GC 8 basis points and the other 2.7 basis points per hundred billion. In order to move GC 25 basis points higher, in a very rough estimate, the Fed needs to drain between $310B and $800B in liquidity."
Presenting The Mechanics Of "Liftoff" Or, How The Fed Actually Hikes Rates
Submitted by Tyler Durden on 12/03/2015 22:30 -0500How would a Fed hike be transmitted? To the uninitiated, it might seem as though Janet Yellen snaps her fingers or twitches her nose and just like that, banks and money markets price in the 25bps. But contrary to Haruhiko Kuroda's characterization of central bankers as fairy tale protagonists, it's not as simple as waving a magic wand and in the US, the whole show runs through Bill Dudley's Open Market Trading Desk at the New York Fed.



