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 While some had feared up to $1 trillion would need to be withdrawn to achieve The Fed's goals, the size of this initial RRP suggests there is considerably less excess liquidty in the system than many would believe...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

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Buckaroo Banzai's picture

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

thesonandheir's picture

Hopefully Bernanke after his swim with the fishes.

OrangeJews's picture
OrangeJews (not verified) Sages wife Dec 17, 2015 2:13 PM

And a shit ton of Silver

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

Jay_Son's picture

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

teslaberry's picture

"when you drain a swamp..."

that's a great quote. well done.

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.

Reichstag Fire Dept.'s picture

"Drain a swamp"?

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

Storm the Bastille!!!

VWAndy's picture

 Rug being pulled?

Bill of Rights's picture

Let the games begin...

Seasmoke's picture

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

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

Reichstag Fire Dept.'s picture

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

booboo's picture

"Easy sailor, this your first time?"

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:

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.



NotApplicable's picture

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

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.

madbraz's picture



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.

JRobby's picture

A more interesting observation.

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.

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.

SillySalesmanQuestion's picture

Stay thirsty my friends...

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.

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.

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.


JRobby's picture

re-hypothecated into oblivion - STOLEN


HopefulCynic's picture

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


I give up and I will join the scam. 

herkomilchen's picture

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

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. 

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.


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.  

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.

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.

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

fightapathy's picture

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.


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!

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!!"

tommylicious's picture

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

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 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

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. 

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.

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. 

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....

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.

Ghost of Porky's picture

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

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.