This page has been archived and commenting is disabled.

In First Post-Hike Reverse Repo, Fed Removes $105Bn Liquidity From 49 Banks

Tyler Durden's picture




 

In 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 While some had feared up to $1 trillion would need to be withdrawn to achieve The Fed's goals, the size of this initial RRP suggests there is considerably less excess liquidty in the system than many would believe...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.

 

Source: NYFed

As we noted previously, two weeks ago, we cited repo-market expert E.D. Skyrm who calculated that moving general collateral higher by 25bps would require the Fed draining up to $800 billion in liquidity: "In 2013 on my website, I calculated that 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."

And here is Skyrm's take on today's "historic" reverse repo announcement:

Remember all of the discussion about the massive liquidity sloshing around the financial system which would make it difficult for the Fed to raise rates? all of the economists and market pundits pricing OIS, Repo GC, LIBOR at the lower end of the new target range? Remember the Fed increasing the size of the RRP to about $2 trillion to accommodate the new target range? Well … never mind! Basically, the overnight market was "business as usual" today with fed funds opening at .35%, GC Repo averaging at .414% and today's RRP volume at $105 billion, up only $3 billion from yesterday. In addition, GC to December 31 is trading at .45%, implying the Repo market expects rates to stay at these levels between now and year-end.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 12/17/2015 - 14:38 | 6936019 Buckaroo Banzai
Buckaroo Banzai's picture

When you drain a swamp, you find all kinds of interesting things.

Thu, 12/17/2015 - 14:47 | 6936062 thesonandheir
thesonandheir's picture

Hopefully Bernanke after his swim with the fishes.

Thu, 12/17/2015 - 14:47 | 6936065 Soul Glow
Soul Glow's picture

And Jon Corzine.

Thu, 12/17/2015 - 14:53 | 6936086 Sages wife
Sages wife's picture

And alot of gold.

Thu, 12/17/2015 - 15:13 | 6936150 OrangeJews
OrangeJews's picture

And a shit ton of Silver

Thu, 12/17/2015 - 15:53 | 6936384 JRobby
JRobby's picture

"suggests there is considerably less excess liquidty in the system than many would believe."

Because it has been converted to other non-bank assets in preparation for WWIII. A fairly long sentence that really could have been stated as: Stolen

Thu, 12/17/2015 - 16:44 | 6936689 Jay_Son
Jay_Son's picture

Anyone know what happened to Michael Pettis' blog?  Hacked again?

Thu, 12/17/2015 - 17:22 | 6936890 teslaberry
teslaberry's picture

"when you drain a swamp..."

that's a great quote. well done.

Thu, 12/17/2015 - 17:29 | 6936939 doctor10
doctor10's picture

99% of what is being written about the "rate hike" is a load of steaming &*it.

Credit is useless to the average Joe. Thats why its cheap. Nobody can use it. Regulation, taxation, licensing and legal tort threat has shut down all small business competition to the big boyz. That's precisely the way the big boyz want it.

The "rate hike" is simply the fee Fed.Gov is charging the big boyz for having kicked out the competition and helping to implement their monopolies.

that's all.

Thu, 12/17/2015 - 19:02 | 6937291 Reichstag Fire Dept.
Reichstag Fire Dept.'s picture

"Drain a swamp"?

Is that what they call the moat around Wall Street??

Storm the Bastille!!!

Thu, 12/17/2015 - 14:40 | 6936026 VWAndy
VWAndy's picture

 Rug being pulled?

Thu, 12/17/2015 - 14:44 | 6936041 Bill of Rights
Bill of Rights's picture

Let the games begin...

Thu, 12/17/2015 - 14:44 | 6936050 Seasmoke
Seasmoke's picture

So who isn't wearing any bathing suits ???

Thu, 12/17/2015 - 15:58 | 6936411 JRobby
JRobby's picture

Christine Lagarde and "Honk" Paulson are wearing full body, lead shielded suits as "swimming costumes".

As will the rest of the ologarchs jetting to Paraguay soon

Thu, 12/17/2015 - 19:05 | 6937305 Reichstag Fire Dept.
Reichstag Fire Dept.'s picture

I've got my water-wings on...does anyone may finacial "sun block" in $PF 18 Trillion?!

Thu, 12/17/2015 - 14:45 | 6936056 booboo
booboo's picture

"Easy sailor, this your first time?"

Thu, 12/17/2015 - 14:46 | 6936057 izzee
izzee's picture

Wait Tyler>

You wrote: The FOMC 'raised' rates accepted $105.185 billion of Treasury collateral from 49 banks at 25bps.

But from the FRBNY FAQ page:

https://www.newyorkfed.org/markets/rrp_faq.html

What are the reverse repurchase agreement operations (RRPs) conducted by the Desk?

When the Desk conducts RRP open market operations, it sells securities held in the System Open Market Account (SOMA) to eligible RRP counterparties, with an agreement to buy the assets back on the RRP’s specified maturity date.

 

 

Thu, 12/17/2015 - 14:53 | 6936084 NotApplicable
NotApplicable's picture

Perhaps he meant the $105B is collateral for the securities?

Thu, 12/17/2015 - 15:03 | 6936117 izzee
izzee's picture

That is a big difference.  The Banks surrendered CASH in exchange for Treasuries.  They exchanged something - CASH - which has 1:1 leverage for a Treas Security which can be used as Collateral and/or hypothecated so that the Leverge can be 1:X.  The Treas Sec can also be SOLD by the BANK.

pls correct me if I am looking at this the wrong way.

Thu, 12/17/2015 - 15:24 | 6936216 madbraz
madbraz's picture

exactly.

 

worth noting that there is $190 billion in reverse repos with foreign entities and "international accounts".  this amount is double the average of prior years.

Thu, 12/17/2015 - 16:00 | 6936423 JRobby
JRobby's picture

A more interesting observation.

Thu, 12/17/2015 - 15:08 | 6936115 ShorTed
ShorTed's picture

The FOMC accepts BIDS for collateral in exchange for cash.  They put their SOM(System Open MArket Account) Collateral into the market and take in cash.  Tomorrow, or whenever the "RRP" matures the trade is unwound.  Participants in this program are generally cash cows (like mmkt funds), not banks.  The bank repo desks are usually on same side of trade as FOMC (ie funding their portfolios by putting collateral out and taking cash in).

Banks financing costs are much higher than the feds.  Consequently it makes no sense for a bak to raise cash at 40bps in the repo mkt to then re-invest it by taking collateral in from the fed @ 25bps.

 

Nearly all counterparties for the RRP program are mutual fund complexes, end users of collateral.

Thu, 12/17/2015 - 15:09 | 6936137 izzee
izzee's picture

It's the NEW YORK FED that does this, not the FMOC.

as for Who gets to take part:

https://www.newyorkfed.org/markets/pridealers_current.html

https://www.newyorkfed.org/markets/expanded_counterparties.html

 

Thu, 12/17/2015 - 15:39 | 6936207 socalbeach
socalbeach's picture

So combining what both of you said, the phrasing,

The NY Fed's first Reverse Repo operation since The FOMC 'raised' rates accepted $105.185 billion of Treasury collateral from 49 banks at 25bps.

would have been clearer if they stated,

In the NY Fed's first Reverse Repo operation since the FOMC 'raised' rates, the NY Fed accepted bids for $105.185 billion in Treasury collateral from 49 banks at 25bps.

Thu, 12/17/2015 - 14:53 | 6936087 SillySalesmanQu...
SillySalesmanQuestion's picture

Stay thirsty my friends...

Thu, 12/17/2015 - 14:55 | 6936095 Boing_Snap
Boing_Snap's picture

Remeber the magicians work by misdirection, while one hand takes your attention the other produces the trick, we'll see the other side of this in the future.

Thu, 12/17/2015 - 15:42 | 6936189 Fuku Ben
Fuku Ben's picture

"Whether that liquidity is inert and can be easily released by banks, and more importantly, non-banks without resulting in any additional risk tremors is the first $640 billion question that the Fed is facing."

Considering how much the banks held back it will be a while before the chairs start sliding towards the rails as the ship goes down.

But Bibbidi Bobbidi Boo will rapidly become just shuffling deck chairs on the deck of the Titanic as it sinks in the not too distant future. I hope they've worked out a nice smooth global transition plan that benefits everyone not just those at the top or it is just more premeditated crimes to add to the list when the SHTF.

Thu, 12/17/2015 - 15:26 | 6936225 gatorengineer
gatorengineer's picture

My comment yesterday appears to at least be initially accurate, re: if you had a revserse repo and no one came.......

Second comment was that the 3T of excess liquidity was long gone and had been rehypotheticated into obvlion and the 1%.....  and that there was no way it was sitting in banks at 0%.....

No surprise on either front so far.

 

Thu, 12/17/2015 - 16:05 | 6936453 JRobby
JRobby's picture

re-hypothecated into oblivion - STOLEN

Audit findings (LAUGH TRACK DEAFENING)

Thu, 12/17/2015 - 15:28 | 6936233 HopefulCynic
HopefulCynic's picture

A scam under a scam inside a scam over a scam. 

 

I give up and I will join the scam. 

Thu, 12/17/2015 - 15:33 | 6936259 herkomilchen
herkomilchen's picture

If you can't beat 'em, join 'em.

Thu, 12/17/2015 - 15:40 | 6936304 HopefulCynic
HopefulCynic's picture

Well there is no other way to make a living in the markets, you either unknowingly join in (BTFD), or are part of it. Wealth creation in the markets is a Myth, it is just redistribution. 

Thu, 12/17/2015 - 15:28 | 6936235 izzee
izzee's picture

one other point worth mentioning and this is regarding the Rate for the RRP.

Prior to yestereday's Hike, of which much has been made in the MSM and elsewhere:  as in WHAT'S THE BIG DEAL with a hike of 25bps".

Well, here's the deal.  The majority of the Daily RRPs that have taken place, some of which at Months/Quarters end were as large as $250 to $300 BILLION, were done the a RATE of 0.05%.

Now with the RATE at 0.25% the COST of the Treas Secutities "borrowed" for Collateral is 5 TIMES as much as it was yesterday.

 

Thu, 12/17/2015 - 19:50 | 6937513 RMolineaux
RMolineaux's picture

Very good point.  Perhaps one of the unanticipated (or unacknowledged) effects of the increase in the target rate will be to put a big dent into the quarter-closing window dressing in the RRP market, along with related high frequency trading and front running.  

Thu, 12/17/2015 - 15:31 | 6936236 herkomilchen
herkomilchen's picture

a $1 trillion drain may not have a material impact when starting from a $2.6 trillion excess reserve base. $4 trillion, however, will leave a mark

This math does not add up as I understand how the plumbing works.

The full $4 trillion would never be necessary. The first repo sale would be the least effective at budging the fed funds rate as it just soaks up excess reserves across all banks, but after that repo sales escalate in effectiveness as the $2.6 trillion starts to get soaked up and more and more banks no longer have any excess reserves and must start to borrow them.

Thu, 12/17/2015 - 15:43 | 6936319 gatorengineer
gatorengineer's picture

There is alot of other Tier 1 capital than T bills, for banks to borrow.

there is a very good chance that alot/ most of these T bills are being held by European banks and the chances of getting them back are about zero, as the real play they are waiting for is the dollar move.  They will likely start comming it a 1.00-1.02 dollars to the euro.

Thu, 12/17/2015 - 15:29 | 6936239 lordbyroniv
lordbyroniv's picture

Bill Holter said we will see a collapse within 48 hours of this hike so tomorrow by 2 o'clock you all better be ready for some serious crazy ass shit.   Itsss cummming !!!1111

Thu, 12/17/2015 - 15:53 | 6936380 Hitlery_4_Dictator
Hitlery_4_Dictator's picture

link?

Thu, 12/17/2015 - 15:58 | 6936410 fightapathy
fightapathy's picture

https://larouchepac.com/20151216/financial-crash-accelerating-fdr-would-shut-wall-street-down-fast

Lyndon LaRouche, the greatest economic forecaster in recorded galactic history, declared on Monday that the entire Trans-Atlantic System was headed toward a thermonuclear hell as early as Tuesday, maybe even Wednesday... thus proving him correct yet again.

 

Thu, 12/17/2015 - 16:18 | 6936506 JRobby
JRobby's picture

Well I guess I better get up early tomorrow and watch.

Oh, I am getting up early because I need to be in court at 9:00 so I guess I will strip naked and defecate for all onlookers while I scream: "It's over!, It's fucking over!, Can't you imbecilic fucking morons see that it is over! Lyndon LaRouche said it's fucking over for God's sake!

Thu, 12/17/2015 - 16:29 | 6936596 fightapathy
fightapathy's picture

Well, SOMEBODY's o.d.'d on Flakka again. No more bath salts for you, pally.  But please DO defacate on passersbys whilst shouting "Lyndon LaRouche was RIGHT -- muthfuckas!!"

Thu, 12/17/2015 - 15:36 | 6936284 tommylicious
tommylicious's picture

if $105bn moved the needle more than expected, they have to drain less, not more.  dat correct?

Thu, 12/17/2015 - 16:08 | 6936469 scubapro
scubapro's picture

  yes, drain less for the same impact.....and the authors imply that the ability to move the needle with sucha  small amount implies there is Less liquidity than 'investors' have thought there is.   is this bad?  i dont know.   seems like its good for the fedto be able to move the needle so easily.     the ominous tone here though is that in general 'less liquidity'  means markets can unravel quickly or seize up.

on the other hand, dick fisher from the dallas fed was on tv today...the cnbs people indicated with awe that there is up to 2T of RRP available in a 4T sea of liquidity....to which dick replied that there is more like 8T of liquidity out there.  not sure what he was referring to though.   

what i wonder is if it this is like some kind of sieve, where to get started takes 105B, but tomorrow to maintain it maybe takes 115B...mkts get a little squirrelly and it takes 200B to hold it......and probably multiples to get it up to 75bps if they want to raise more later.  its a daily thing, so we can watch it everyday at 1245p

Thu, 12/17/2015 - 15:37 | 6936288 HopefulCynic
HopefulCynic's picture

Why do people speak of excess liquidity, when in reality there has been no such thing. Liquidity never hit the streets, there has been very little useful lending. 

Thu, 12/17/2015 - 15:44 | 6936329 gatorengineer
gatorengineer's picture

There has been virtually no lending to main street.  There has been a shit ton of lending to wallstreet to fund buy backs.  When companies have to start rolling those loans at a higher rate the pain will start.

Thu, 12/17/2015 - 15:54 | 6936386 HopefulCynic
HopefulCynic's picture

Agreed, soon we will see much more lending to Main Street than in the past, even with all this drain in "excess" liquidity. The perfect time for business incubation has ended with no impacting effect. 

Thu, 12/17/2015 - 15:59 | 6936412 gatorengineer
gatorengineer's picture

I think quite the contrary lending to main street is going to lock up.....  0% car loans and 3% 30 year mortgages are over for now.  There may be a very short term uptick in housing starts, car sales, as people late to the party jump in.  Starting a business unless its a gun shop, pawn shop, payday loan store, would be foolhardy....

Thu, 12/17/2015 - 15:55 | 6936388 fightapathy
fightapathy's picture

This is why PCG wrote that raising rates by 25 bps is meaningless when loans are avging 13 bps. The lending market is dead. So raising them by 25 only means they'll lie dead at 25 and stay there... dead.

Thu, 12/17/2015 - 16:02 | 6936431 Ghost of Porky
Ghost of Porky's picture

I've got some liquidity I'd like to release.

Thu, 12/17/2015 - 16:08 | 6936475 Catullus
Catullus's picture

Why would i repo $100bn at 25bps when I can keep $100bn parked in IOER at 50 bps?

The fed needs to repo at a higher rate than the IOER. What they're doing is still inflationary. They needed a 100bps move with a 25bps IOER.

Thu, 12/17/2015 - 17:52 | 6936995 herkomilchen
herkomilchen's picture

I had the same thought.  Why is IOER not 0 for that matter.  Why is the Fed bidding against its own repo operation.  And why is the Fed continuing to roll over maturing bonds even as it issues repos.

Thu, 12/17/2015 - 19:29 | 6937426 RMolineaux
RMolineaux's picture

The Fed has to keep all those excess reserves locked up by raising the interest it pays on them.  Any dipping into them by commercial banks would offset its repo operations.  This, of course, continues the Fed's gift of taxpayer money to the commercial banks - merry Christmas.   Another question: is the Fed trying to keep secret the names of the 49 "entities" with which it is trading reverse repos?

Thu, 12/17/2015 - 16:17 | 6936520 Goldbugger
Goldbugger's picture

Let's see how this affects equities.

Thu, 12/17/2015 - 16:20 | 6936546 the grateful un...
the grateful unemployed's picture

there is no free market in lending, there is no market period so they can hang any number on it they want by levitating bank rates through RRepo. it does make it easier to do stock buybacks and M&A, the fed is subsidizing wall street. this move requires no imagination, hence gold gets monkey hammered again. they kicked the can, will they kick it again, wall streets not sure, its like you just got the biggest christmas gift you could hope for, but what happens when the credit card bill comes in next year? some of the toys will go back to the store. what does the Fed do next, give the banks more of its compromised reserves and a full point of interest for holding them?  thats why wall street is cautious. santa yellen just poured 151 rum in the punchbowl, and we should go parabolic into the new year.

Thu, 12/17/2015 - 16:36 | 6936632 yellensNIRPles
yellensNIRPles's picture

I will believe a 'crash' when I see one actually happen. Many of us are ready for it. But the FED has proved incredibly adept at kicking the can further and further down this dirty road. Could be years more. Really.

Thu, 12/17/2015 - 17:40 | 6936979 surf@jm
surf@jm's picture

The FED needs to suck up that liquidity, so they can hand it to congress, to fund the pork spending.......

Thu, 12/17/2015 - 17:49 | 6937007 Aussie Battler
Aussie Battler's picture

In Aus, we have record low int rates of 2%.

 

0.25-0.5% is still insanely accommodative. Oh but the Keynesians say its natural, it's only natural because of the grotesque, over indebted zombie economy YOU have created, you scum. 

Thu, 12/17/2015 - 21:02 | 6937762 RMolineaux
RMolineaux's picture

This transaction worked out so neatly that is raises suspicion that it was all pre-planned.  The drop in yield of the long bond and resulting flattening of the yield curve was probably due to the increase in the dollar index, the latter being due to events outside of the Fed's control.  

Thu, 12/17/2015 - 21:40 | 6937865 slovester
slovester's picture

According to the NY Fed web link provided in the first line of the post - https://apps.newyorkfed.org/markets/autorates/tomo-results-display?SHOWM... there have been 24 reverse repo operations in the period 11/13/2015 through today for a total of 2.268 trillion dollars.

That is a lot of bucks for just over a months time...

Do NOT follow this link or you will be banned from the site!