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What Is The Reason For Today's Stunning Plunge In 2 Year Repo Rates?
While most bond watchers are keenly focusing on the latest selloff in the long-end of the bond curve in general, and the 10 Year in particular beuase supposedly the Fed is going to hike "any minute now", it was the 2 Year where the real fireworks are, and as can be seen on the chart below, not only is the nominal yield on the 2Y rise to the above the highest closing level of 2015 and the highest since April 2011...
... but just as importantly the yield on the 2Y TIPS is positive only for the first time since late 2014 and early 2015 when we had yet another imminent rate hike scare:
So what is going on here: is it just more seller than buyers, who are front running an epic curve flattening or even the inversion that may well happen once the Fed launches its rate hiking cycle?
Or is something else happening behind the scenes.
We ask because in addition to the normal selloff in cash products, something far more dramatic took place in the repo market where the rate on the 2Y just suddenly crashed out of nowhere.
Here is one attempt at explanation by Wedbush' Scott Skyrm:
Almost out of nowhere, Repo rates in the 2 Year Note dropped dramatically today. Since the issue just settled two days ago, we're too early in the auction cycle for it to become naturally special. We're in the middle of the slowest week in the summer, so a general increased market activity should not be driving it. The Street hasn't been actively squeezing issues since 2006, so that's not the reason. My best guess is that some yield curve flatting trades were put on yesterday, expecting a grater probability of a Fed tightening in September.
That... or central banks themselves (and on in particular) were eager to give the impression that today's data is highly suggestive of a rate hike (just ignore the ADP report, and the ongoing commodity carnage please), and soaked up all available repo then proceeded to slam the living daylights out of the 2 Year note.
In any event, if the Fed itself is telegraphing - via the short end - that the Fed will hike rates, there are two possibility: i) the Fed will hike rates or ii) the Fed will once again be massively wrongfooted and will be forced to cover its 2Y short sending the yield on the short end crashing and leading to some more VaR shocks among whoever it is that is still actually trading securities in this beyond illiquid market.
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glitches
......Bitchez
......>>>>>>>>>>>>>>>>>>>>
Since I don't know much about repos, I don't understand what Tyler is reasoning and how he is drawing his conclusions. Does anyone feel like explaining the last three paragraphs?
Just for a point of discussion here. The consensus is the Fed will never raise rates or put it off yet again OR do they have to raise at this point like the .1% that was leaked a few weeks ago.
"In any event, if the Fed itself is telegraphing - via the short end - that the Fed will hike rates, there are two possibility: i) the Fed will hike rates or ii) the Fed will once again be massively wrongfooted and will be forced to cover its 2Y short sending the yield on the short end crashing and leading to some more VaR shocks among whoever it is that is still actually trading securities in this beyond illiquid market"
They seem to be consistently saying they are going to raise rates. The market keeps calling their bluff. Somebody is wrong. I think there is something out there the FED knows is coming. The Bernank lied. 15 minutes, lol.
Like a large foriegn holder of UST's dumping them ?
That delay in yuan SDR inclusion times out perfectly with their slo mo dumping.
"The federal funds rate will not go up significantly in my lifetime." - Ben Bernanke.
Why does everyone assume the Fed controls interest rates? Isn't it just as likely that the Fed follows the market rather than leads it?
Perhaps the Fed's only power is their ability to control perceptions, and the reality is they don't really control anything at all?
They very much are in control of the interest rates paid by their own primary dealer banks and treasury. (That is a fucking "club" circle jerk anyway to keep robbing the public taxpayer)
You may be correct when it comes to the interest rates you pay. This is in fact why it becomes very easy for them (central banks) to deal with their debt, no matter how huge.
Your debt is another thing altogether, back to work slave.
By the way, these are global oligarchs/central bankers, they most certainly will abandon governments if it suits their interests, hence, all wars are bankers wars...
"Your debt is another thing altogether, back to work slave."
Don't have any debts. Everything I own is paid in full.
Weird, eh?
Here's a question thought. If too big to fail banks get into trouble by, say, issuing flakey securities, then when trouble strikes and the Fed lowers rates to bail them out, who is actually leading and who is following?
Looks like it's getting more difficult to keep all the plates spinning.
Yeah, but Yellen&co. are going to try their damnedest.......
There is no other choice. The end game seems obvious though.
Or Dumbest...
You sir, are an optimist. It is in fact easier than ever for the Fed and global financiers. The game has considerably fewer players now, much easier to control. The game may be irrelevant but it will take considerable time before the supply lines break in earnest.
absolutely. no volume at all. when the market just sits - flat - for half the day, you know its dead.
Germany owns Greece's CDS and they are extorting taxes upon them like an empire over an owned land. Germany has conquered Athens.
Are you suggesting that the average Greek is actually paying taxes?
LMFAO!!!!
Yeah. Didn't ZH just have an article about how Apple is a main player in the bond market sometime taking up entire issues?
Well their stock took a shit and they lost over $100,000,000,000 in value so there's that.
SEE? Everything is going just shiny and Nirvana is just over the next cliff......
Is it Apple?
No, blame it on Chevrolet. (the new, but old GM).
The last chart candle is obviously John C. Holmes. Who are the other 3?
(Am I reading this right?)
Little early in the day for this, wouldn't you say?
We're just gettin' started. Yieeeeeehah!
Do you think all ZHers are in one time zone?
A very timely rhetorical question.
I'm on the west coast which has the salutary effect of limiting the down-votes I get. By the time the next day rolls around, everyone's moved on and I'm left looking pretty good.
Hillary, Huma and Catylin
(I mean the 2 year repo goes special and Catylin keeps his/her/its junk and still likes girls. I'm seriously confused.)
PS Reminds me of the old country song; "She has one too many Y chromosomes for me"
Amazing - all this 'sound & fury' over the still yet 'possibility', of a ~miniscule~ rate hike.
If it were reasonable that the world needed a rate hike, ther's be no sound and fury about it whatsoever. Duh.
Sometimes I really wonder (deeply) about the tripe the talking heads must spout to remain employed as spouting heads.
Then again ....
30 to 1 leverage will do that to you...even w/ OPM
"market" -- LMFAO!!!
Come on dude...
Oh, there's a market alright.
You can dam up a river, but eventually that water's got to go somewhere.
Not quite the same, but yes, eventually all those paper claims on real assets will start seeking them out, right about the time no one will accept the very same paper/digits.
fuck em.
If the FED's raise rates, then you will have 72 hours to get "your house in order", for the grand reset is "at the door". ZIRP & continuous QE have wrecked real capital and allowed failed businesses (i.e. banks & fracking companies as couple examples) to be propped up and put heavy burdens on people around the world and have already caused great strife and death upon the peoples of the world. It will get much worse and I fear that it will be before the next election cycle and we will have, as judgment on our nation, King Obama. May God take pity on us and may we acknowledge our wickedness before Him and ask for mercy.
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More war is coming; wars of all kinds and nation will rise against nation in ways seen and unseen.
Deflation worries seems like the core reason for this bottoming out on Repo Rates. The CBs are only working with monetory levers (and not fiscal ones) and they are already paying ZIRP or even negative interest rates for intrabank lending.
I think that this experiment in Monetary Stimulus has now been tried to the max, don't you?
Austerity + Meonetary stimulus policy has only benefited banks and oligarchs. That the economy is failing to respond should lead to a throwing out of those policies in favor of fiscal Keynesian policy with government investments in infrastructure, training, core capital outlays like addressing weatherizing homes, green energy/nuclear projects that then pay dividends down the line.
Or do we need to jump off the cliff pursuing the same zombie ideas of the Alan Greenspan era?
Come on. Be scientific here. Austerity and monetary policy don't grow economies.
Spending and consumerism grow economies. Debt ratios go down with a growing economy. We know this.
Sure, now do you really believe that growth in any one species can continue forever in a biosphere with finite resources?
Tell us all another bedtime story Santa.
I have ferns in my backyard that date back to the Mesozoic era.
No dinosaurs though.
Exactly. "all things in moderation", thought the fern...
Wonder if the fed will. Accompany a fed funds rate increase with a increase on rate paid on funds at the fed . if not wouldn't. Some of the funds leave the fed for other places.
or iii) Reverse Repos Go Parabolic: ‘Liquidity Shock’ Derivatives Melt-Down Has Begun! http://forum.prisonplanet.com/index.php?topic=262837.0
Eventually all those bullshit paper promises and bullshit claims on real assets will start seeking them out.
It is related to this:
http://www.bloomberg.com/news/articles/2015-08-04/fed-s-limited-time-off...
The Fed is stuck, period. They will execute such a plan at the same time they raise the federal funds rate, in other words, never...
The Fed. is playing a game of ~Chicken~ with itself.
Assuming the Fed. lifts rates, it makes perfect sense to have a "put" in place on the short end as traders bolt from equities and buy Treasury Notes, the Fed. can unload the puts to hold the "rate level" hypothetically.
Most of the move in the USDX and bond markets is priced in now, such that the equity markets need to catch down to reality.
My thoughts exactly. reminds me of the "Sheriff hostage" schene from Blazing Saddles. All the while they are hoping the world will still accept all those bullshit paper/digital promises...
tick tock motherfuckers...
Don't get me started on the 'carry trade' LoP. There's the cost of borrowing, and then there's the cost of converting.
My best to your tribe. ;-)
It's a textbook BAIT & SWITCH nothing more. They cannot raise rates.
“Spending and consumerism grow economies.”
So says, “novictim”, at 14:14.
A gaggle of welfare recipients is a society of consumers: isolate them on a desert island, and watch them eat one another.
No, “spending and consumerism” do not grow economies. Unregulated, untaxed, and accountable human action are the engines of advancing civilizations.
And there’s hardly a man on the planet who knows the historically-proven method by which such civilizations thrive.
Civilizations thrive if;
1) they have the resources to do so.
and
2) Bad behavior has dire and very real consequences at all levels of that society. (Thus insuring that resources are allocated appropriately).
Everything else is fucking noise.
Clever