Record $189 Billion Injected Into Market From "Window Dressing" Reverse Repo Unwind

Tyler Durden's picture

When we reported yesterday's record reverse-repo surge, driven entirely by collateral-strapped financial entities scrambling to "window dress" their balance sheets with rented Fed-owned Treasurys for regulatory purposes, we said "Expect total reverse repo usage tomorrow to plunge by at least $150 billion as the banks will have fooled their regulator, which also happens to be the Fed, that they are safe and sound. Rinse, repeat, until the entire financial system collapses once again and people will ask "how anyone could have possibly foreseen this." Moments ago the Fed reported the daily reverse repo use. It turns out we were optimistic: it wasn't $150 billion, it was $189 billion. Following yesterday's $339 billion allottment, today this number tumbled to just $151 billion, meaing nearly $200 billion in fungible cash had to quick find a new home away from the Fed.

Which, incidentally explains where the relentless buying in today's market is coming from: today the Fed just released liquidity for two months worth of POMO in one day - money which promptly had to find a parking spot until the next quarter end when the same window dressing exercise is repeated and which will continue to go on completely unnoticed by regulators.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
NotApplicable's picture

Fuckin' magic, I tell ya!

So... how many more quarters until we get a trillion dollar reverse-repo? 8?

RaceToTheBottom's picture

Volatility is a thing of the past....

Something for uncivilized societies, not ours....

Cthonic's picture

Is that why I suddenly cannot short any XIV?  Or is it just my shitty broker?

Duffminster's picture

I am confused.  I thought reverse repot operations take liquidity out of the system.  In a reverse repo the Fed sells a security and takes cash.  So how would this drive stock prices up?  You mentioned in previous articles that POMO is starting to dry up.  Can you please provide some elucidation on how the actions of yesterday would account for the large spike in the market?


Completely confused,


FieldingMellish's picture

I am sure this is having a stabilizing effect on the markets... and no unintended consequences either...

CharliePrince's picture

so this is bullish   yes?



fonzannoon's picture

there is such massive demand for UST's that the fed needs to lend them out to banks before they audit them to make sure they own a sufficient amount of collateral (UST's). see...all good.

LawsofPhysics's picture

This is my take as well.  The demand for and shortage of "good collateral".  Same as it ever was, until it isn't.

fonzannoon's picture

Same as it ever was, until it isn't. Unless somehow it is, same as it ever was/is. 

All I know is the you have the Nikkei, Yen, the JGB market and Crude as your canaries. Assuming we actually had time to pivot should things go the other way, which I don't think we would...I am looking at those 4 things as the indicators that something is going wrong.

Dr. Engali's picture

Crude is what will kill it. Everything else can be manipulated through central bank coordination.

fonzannoon's picture

agreed. If it was any of the other 3 that means the banks turned on each other. 

I do wish ZH would start putting up a death watch on this guy....even if just to pass the time...

gatorengineer's picture

Well not sure there is a canary..... Crude certainly isnt it.  It can be manipulated rather easily by the volume (coverage) of the unrest in the world.  Its artificially parked right now.  Based on Geopolitics it should be north of $120 a barrel, and based on economic outlook under $95....


10 year under 2.40...... would be a sign for me, as well as the SSE breaking 2k, the wrong way. Gold getting to 1400 would also be a turning point.......

youngman's picture

It is if you are the guy in charge of those key strokes....he has some power

alien-IQ's picture

but I thought the market was rocketing up because the economy was doing great?

Dr. Engali's picture

What we are witnessing here is the death of a currency.

gatorengineer's picture

What we are witnessing is the death of Fiat, not a currency, big difference......  We are in the trading range against all other currencies.  The RMB is much more fucked than the dollar by the way.

PlusTic's picture

more fukking's never gunna end

dr.charlemagne's picture

i never really feel like i understand the utility of this repo/reverse repo stuff which apparently dominates the financial underpinnings of the entire world. My guess is that its hard to understand because its pure BS which serves only to obfuscate the fraud further and confuse those who expect that the system is fundamentally honest.

Dr. Engali's picture

Think of it this way. The fed is buying up the bulk of the treasury issuance creating a shortage of collateral. At the end of the quarter entities in need of collateral 'borrow' them from the fed in order to meet those collateral obligations and then once they report their numbers they return them to the fed. In other words... It's pure BS to obfuscate the fraud.

gatorengineer's picture

heres what I dont understand, to borrow Tbills, what do they post as collateral, or ar the lines unsecured?

Duffminster's picture

Thanks.  Yeah, but how does this correlate with the pump in the market today if at all?  I'm arguing with people over at CNBC and their saying that reverse repo's remove liquidity, which should make stocks go down?

LawsofPhysics's picture

The "repo" market has been around since 1917.  The reverse repo is somewhat newer, but the question still stands, what will actually stop this or cause it to blow up? 

Seriously, what's the god damn trade here?

LawsofPhysics's picture

LOL, well yes, aside from the "obvious".

fonzannoon's picture

But isn't that the most amazing thing about all this LOP? That we are all looking for the trade other than the obvious? I swear at some point Yellen is going to cause a disruption because she is going to lose it and start screaming "JFC just get in the fucking SPY already and stop scratching your heads and balls in confusion! I'm  looking at you pension funds!!!"

Dr. Engali's picture

You can go long Gopro, and if the trade goes wrong you can always snap a photo of your screen when it drops to zero. Should be a good keepsake.

LawsofPhysics's picture

At least people actually pay for their GoPro, unlike their Facebook accounts.  GoPro is up, time to sell.

madbraz's picture

Need to ask the trading desk of the NY FED - the largest trading desk ever assembled by any central bank, the largest team of "research analysts, the largest number of economists ever assembled...


WTF do they need all this?  just guarantee 10% annual return to all risk (bag) holders and close shop.

madbraz's picture

what a corrupt, shyster organization

Temporalist's picture

I thought some would get a kick out of this:

Security Detail for Fed Chairwoman Irks Neighbors

Residents in Gated Community Say Commotion Surrounding Yellen Is Disrupting Neighborhood

"Neighbors seem especially put off by the aesthetics of the security detail, in particular their blue uniforms and—in the words of one resident—"doughnut bellies.""

JRobby's picture

Q2 Balance Sheet fix is in. Kick the can down the road. Q3 should easily exceed $220b (seasonally adjusted of course)


IANAE's picture

Does anyone have longer term chart of repo volume to post here?

Dr. Engali's picture

No, the reverse repo window just opened last year.

LawsofPhysics's picture

Yes, facilitating the ability of the TBTF banks to purchase equities.

Soul Glow's picture

And what are the Majors doing with the cash?  Buying equities.

Ain't life grand, Janet?

DavidC's picture

Something that confuses me. If the Fed is lending treasuries to the banks to window dress for the end of quarter, surely that pulls OUT money/liquidity. So how was the market up yesterday for the month end?

I can sort of understand it today if money/liquidity has been given back to the banks et al.


Duffminster's picture

I have the same question.  When you make a claim like this, it would be helpful to explain it in some detail.  So far the claim is counter-intuitive to me.

IANAE's picture

Related...ignoring that reverse repo is relatively new, what were banks using to window dress in 2007-2008, and what do those figures look like consolidated with reverse repo volume?

Greenskeeper_Carl's picture

I'm sure others can explain this a lot better, but I think it's been done as an intentionally confusing gimmick to try to kick the can a while longer. The closer the wheels get to coming off, the more creative they have to get. Just like every time inflation starts to hear up a little, they just change the way it's calculated. And when unemployment numbers aren't dropping like their predictions say they should, they find new ways to not count jobless people as 'unemployed'. Same sort of con job, this one just makes insolvent banks appear solvent. It works until it doesn't.

Save_America1st's picture

The Tylers called it.  You guys are getting way too good at this.  In fact, you're getting so good, that you all may want to think about staying away from flying, the tops of tall buildings, bridges, and nail guns.  Just sayin'...

OC Sure's picture

This is an interesting subject.

After studying the link in yesterday's post of the IMF whitepaper and then to the link of the orignal Gagnon/Sack proposal to bastardize the fedfunds rate by allowing for the RRP rate to become a target Federal Reserve rate that sets all others, then it becomes clear that the aim is to collateralize the excess reserves from QE as RRPs. Collateralizing them would then enable them to rehypothecated by Hedge Funds. The other variable involved is to see more RRPs being done as term instead of overnight.

This is going to be a very hot topic for the gods of counterfeit as it enables them to widen their smoke screen.

Yen Cross's picture

     Here's a very simple 2.5 minute tutorial on reverse repo's for anyone that doesn't understand how they work.

A Fed explainer: What's Reverse Repo? |

Duffminster's picture

I am confused.  I thought reverse repot operations take liquidity out of the system.  In a reverse repo the Fed sells a security and takes cash.  So how would this drive stock prices up?  You mentioned in previous articles that POMO is starting to dry up.  Can you please provide some elucidation on how the actions of yesterday would account for the large spike in the market?


Completely confused,


Yen Cross's picture

  Reverse REPOs do take liquidity out of the banking side of the system. Banks borrow bonds from the Fed. s/t and the Fed. pays them interest, or buys them back at a higher price.

   The banks have capital requirements that liquid cash doesn't qualify for, so they borrow the cash equivalent in bonds to meet those requirements. When the banks didn't sell all the collateral(bonds/treasuries) back to the Fed. today the excess cash went into the markets.

Duffminster's picture

A pretty smart guy posting in comments on CNBC said this:

"...Repo has nothing to do with reporting requirements. read the NYFed link I gave you. reverse repo is currently just being tested; it's purpose ultimately is to suck up liquidity. cash is an asset which can be used to meet capital requirement; trading cash for bonds does not improve a capital requirements showing.

Since the holder of cash hands the cash to the Fed it is not an injection of cash into any market; it is effectively taken out of circulation because the Fed can take it out of circulation. This is a way the Fed can unwind its balance sheet...."


Can someone tell me if he is correct or are he and I both missing something?