Repo Soars To 2013 Highs On Default Fears, Bifurcated Collateral Market

Tyler Durden's picture

While stuff like soaring Bill yields, the threat of Money Market funds breaking the buck, and the gradual phase out of near-term money equivalent collateral thanks to the complete dysfunction in Congress which has managed to breach the repo market into "good" and "bad" Bills, may be too arcane to the various JPY-correlating, ES-ramping algos, those who care about real signals, now that the US flirtation with the X-Date is hours ago may be interested to know that according to ICAP, as reported by Stone McCarthy, overnight General Collateral, the key rate in the determination of collateral pricing for trillions worth of assets, just exploded once again and in following the surge in Bill cash rates, hit 0.32%, the highest since December 7. Indicatively, at 0.32%, GC is now well above both overnight LIBOR (10.69 bps) and the Fed Funds rate (10 bps).

This is how Stone McCarthy explained the latest jump:

Fed funds opened at 0.10% for the fifth consecutive session this morning, and yesterday's Fed funds effective rate was unchanged at 0.10%. Prior to Friday, it had held between 0.07% and 0.09% every day since June 18th except for the September 30th quarter-end of 0.06%. However, although Fed funds have been steady, the overnight GC rate jumped again, to 0.32% in today's early morning reading, which is the highest since December 7, 2012, as players react to the debt ceiling crisis.

More importantly, since this surge was just as we predicted would happen in our second, still open debt ceiling-related trade reco from October 7, "With A Looming Debt Ceiling X-Date And Still No Deal, Here Is Another Trade Idea", in which we suggested to go long collateral rates (when GC was < 10 bps), it is now time to close with a pick of 24 bps as the logical worst case scenario, an actual US default, would likely mean wiring and funding transactions would halt at all banks, and all profits would be left on the table... so to say. 

And now we sit back and wait for today's 4-Week Bill auction in a couple of hours which should conclude this morning's dose of firework festivities.

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One And Only's picture

Its a cunt hair higher than March. Boo!

Seasmoke's picture

Those are some thick cunt hairs, you've been munching on. 

Bearwagon's picture

Now, that was articulate, wasn't it?

Zer0head's picture

Warren Buffett warned Wednesday that failing to raise the debt ceiling would be like unleashing “poison gas”
Cult_of_Reason's picture

Buffett's hypocrisy is only matched by the size of his multibillion-dollar portfolio.

LawsofPhysics's picture

Both would be crushed, should mark to fantasy accounting end.

Winston Churchill's picture

A rotting zombie would know a lot about poison gas.

Does Becky wear nose plugs when giving him his bath ?.

Bearwagon's picture

Are those these "unpoppable" bubbles I hear so much of, recently?

GMadScientist's picture

No, but they're always ready to inflate another no matter how much collateral damage (see what I did there?) occurs.

Quinvarius's picture

Buffet says we have had a solid currency for 237 years.  Sounds like someone has been selling CDS.

I assure you old Mr Buffet, the US has been through several currencies in 237 years and all the paper ones died.  Your statement was pure nonsense.

Winston Churchill's picture

About time for a MOAR collateral call.

Last time with RMBS it had interesting results.If you call a total meltdown interesting.

ebworthen's picture

Key point being "exit this trade".

Debt ceiling deal tomorrow in time for Dinner and the Evening News.

Clowns on Acid's picture

Who would have thought that cash would be King?

LawsofPhysics's picture

What exactly is considered "collateral" when you are using mark to fantasy accounting?  Oh wait, I think I see the problem.

Hubbs's picture

Buffet has benefited so much from special government priviledges and insider information in the finacial markets he can no longer be trusted. He pretends he's an "aw shucks" kind of guy, but his opinions are entirely self agrandiosement. He has never done a God damned productive thing in his life- only the  transfer of money from one set of investors to his own pocket and that of Berk Hath.