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An Odd Spike In General Collateral
By now most are used with rates for General Collateral and the OTR 10 Year particularly to trade at quite depressed levels. After all, with continued problems in European funding markets, there is little place for traditional capital to go than good old safe US repo markets. One need to just read the latest from collateral expert Joseph Abate of Barclays to find what the consensus on the matter is. To wit: "Higher bank funding rates, however, are unlikely to attract much demand from money market funds. Instead – and as they have done all summer – we expect prime funds to shorten their average WAM (from 39d currently) and to shift their asset allocations further toward repo, bills, and agencies, which already account for 30% of their holdings. We also expect prime funds to increase their already extremely high (46%) 7d liquidity buffer. In addition, money fund investors are likely to make some adjustments of their own – shifting balances out of prime funds into government-only balances. Some of the more risk averse money is likely to flow into non-interest-bearing demand deposits, which have unlimited FDIC insurance coverage through the end of 2012." On top of this there are technical considerations for even lower repo rates: "More immediately, dealers are preparing for quarter end. The normal end of quarter balance sheet repositioning (and shrinkage) is expected to further pressure overnight repo with collateral rates expected to stay pinned below 5bp through month end. Demand for term repo will also pick up as investors seek to pick up a few extra basis points." The same is just as true for the 10 Year OTR which "has traded deeply special given its limited supply – both in the market (as the first issuance) as well as in the Fed’s SOMA lending program. In recent days the issue has traded at a 250bp or more premium to GC." Yet something interesting happened in the actual General Collateral rate as of yesterday: it soared, despite both fundamentals and technicals, to the highest level since fears of an imminent US bankruptcy brought it to year highs in the first week of August.
So...what is going on here? Just a one day aberration, or have money markets found some other asset class they think is of great interest in the past few days. Judging by the drop in Treasury yields, that's not it. And Europe is, well, Europe. Or is the market suddenly assuming there will be no IOER cut despite Goldman's assumption of at least a 50% probability of an IOER rate cut. Or is the only attempt to generate alpha for those who are underperforming indices, and that would be virtually everyone at last check, to incite a massive short covering squeeze in the broader market? Or has everyone decided to play it safe and moved to cash?
Keep an eye on GC Repo: it always tells us much more about the general leading flow of liquidity than virtually any other indicator.
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Pure schizoid $kam.
Not an expert but don't the Euro banks need collateral to get cash from this coordinated intervention. Don't know why but I'm sure it has something to do with the intervention today. Question. What to the central banks do with the collateral they receive when they loan dollars. Do they sell it into the market somewhere or do they really just hold it.
For Repos, AFAIK, the beneficial owner of the collateral doesn't change, so it would be illegal to sell it. I could be wrong though, been a while since I looked at ISDA collateral agreements.
As to the spike in GC ... well ... collateral is everywhere, but cash is short. From memory, cash repos require credit-grade assets to repo against i.e. sovereign bonds, Aa1 bank bills.
If the credit rating of a sovereign government or banking institution were to change, I'm not sure if the lender can demand that the borrower post additional collateral. Zero Power would know.
The Bernank just agreed to loan me $800,000 USD, and all I had to put up for collateral was a George Foreman grill.
You idiot. In a few years that grill will be worth something. Can't say the same for the 800K.
make that 800 B FIxed!
There's an inversion for this week in MBS / Treasuries Value - take a look DTCC
Is this the cause of treasury settlement fails spiking, the other way around, or are the two uncorrelated?
Treasuries do seem correlated - more MBS weight, higher rates across the board - except yesterday when Treasury rates were flat and MBS/Agency spiked. That implied less volume so tomorrow the Treasury volume must be low or the combined volume very low.
Treasury settlements should thus have spiked, I guess.
No wonder the traders in UBS have a boner and get horny about crazy trades every time they see a chart like this one!
We will get to the point that "odd spikes" are no longer "odd spikes" anymore.
Is it true that during "The Great Depression" that welfare did not exist? People didn't have the govt to pick them up when the market crashed. Our govt today provides welfare to 43,000,000 people. What would America look like in today's economic atmosphere if these 43 million got zero welfare? Would economists say we were in a depression? Try feeding 43 million 3 times a day in food lines or soup kitchens?
Someone was making the point in the op-eds pages that the open-ended unemployment extensions and increased food stamps data are in fact modern food lines for the current depression. Without those, people would be literally starving. And we can assume likewise that without other animal needs being met (like access to 24/7 cable TV) they'd be more likely to set various downtowns ablaze.
Buying time. That's all our ruling masters can do now. But they can buy time for a long time is my guess because nobody on any side of any trade in any currency on any continent wants the music to stop anywhere for even a nanosecond.
Yup. Don't forget that 43 million angry protestors without a safety net.
From a post earlier today (and yesterday):
"While we can only hope we are wrong, if we are right this means the short squeeze on the market is about to slam shut and Goldman will make out like a bandit as usual, with the S&P soaring several hundred points on ever worse macroeconomic and geopolitcal data."
TD, this seems like double-speak. So when the rise in stocks caused by the short-squeeze "slams shut," you're saying stocks will leg up yet again? It sounds like TD is long here. ?????
Time and time again, articles say that the Fed and policymakers are out of options, the end is here, etc. etc., and yet time and time again they surprise us like they did today with a concerted effort to prop up the system. They are limited only by their imaginations, not by natural laws. What's really interesting is that while ZH is great at pointing out the half life of daily stock moves on the news of today's liquidity line, what hasn't been considered is that the long-term system will remain in place precisely because of moves like the one made by central banks today. That's a win, even if stocks don't soar ad infinitum on the news of it, because it keeps the TPTB in power.
Another interesting thing to note is the move in gold on news of USD liquidity being made available to Europe. Is that a sign that European banks were in gold as a hedge against not being able to acquire US dollars in the face of dying Euro? If so, this news and the concerted effort by the banks might just be a policy tool to kill gold, and wouldn't it be a brilliant one? It would keep domestic inflation in check while bailing out Europe, which would be a very big domino were it to fall.
Also, how is Operation Twist a form of QE? No new money is being printed, to my understanding at least. Short-term bonds are sold while longer term yield is bought. That's not new printing, except in the sense that it keeps rates low and thereby encourages people/businesses to borrow, which is a form of money printing in this God foresaken debt-based monetary system of ours.
Exactly. Consumer=printing press.
This could go on for years. Fucking insanity of it all...blows my mind!!!
Exactly. Consumer=printing press.
This could go on for years. Fucking insanity of it all...blows my mind!!!
Hmm, over 1000 reads and only 8 comments. Good, I don't feel as dumb as I did when I first read this.
Thanks for saying it. I read it a couple of times and got more each time, but I get that I don't get it. To be honest, the spike didn't even look that spikey to me.
It's just a little indicator that says maybe libor is about to have a psychotic break or at the very least start a little tourettes episode.
But there are lots of moves that look like that on that chart.
GC is higher because it's corporate tax day an today's the settlement of new Treasury issuance.
Welcome to "Going Through The Motions Capitalism".
It's really fascism since governments and central banks shower favored corporations and individuals with the spoils of the economy and warfare.
If the global interventions fail get prepared for this: forced labor, forced wages, forced relocation and fixed prices on essential goods.
On the bright side, we get free punch every year on the anniversary of "The Great Liberation": the day the Central Bankers were renamed People's Utopian Visionary
Looks to have a rough inverse correlation to stocks so I am speculating that this spike isn't good. Am I reading this right?
The ultimate paradox:
The global rescues and ongoing monetary and fiscal stimuli have seriously blunted the profit motive.
Increasingly, the profit is in distress-provoked rescues.
Since free-market profit involves risk, there is increasing aversion to free enterprise. Why engage in it and risk losing? Not when you got a sure thing going.
The trends from 09-10 are intact: keep cash on the balance sheet, do not deploy or invest into the real economy, hoard cash, negative real interest rates for as far as the eye can see will ensure that the strategy will pay off.
Le Tarpe.....thanks to the ECB. Did not coin the term...read it on another comment this am, gotta say it fits well. So, does the short squeeze go on a little longer than expected or does it just pump up vol into the weekend??
Currency Polarity Swapping vs. Retroactive Taxation Confiscation
Are you an impartial observer of the bipolar spreads, centers to peripheries, their relationship to equity volatility, and central bank intervention? If so, you see the outliers. You do not want to enter the eye of the hurricane/sun impatient and stressed out…
So, you have a stack of waves formed on the event horizon with a creation hash table, in a parallel processor of parallel processors, on a platform / vortex built for the occasion. Depending upon the hash table tuner algorithm…is backlash good or bad?
AI programs AC to behave like DC, and DC to behave like AC, loading backlash through the resistors to resistance until it may be profitably unloaded into a symbiotic system built for the occasion, which gives you the fusion/fission reactance that the non-thinkers cannot fathom, by choice.
Currency is like a dye that reveals circulation direction. Direction is integral; speed is derivative. Change the direction of money and you change fortunes. There is no plan, which drives the non-thinking insane. Build a symbiotic system, any system, from the false-work in the closet, and the universe will provide the current required to drive it.
Controlling currency is the ultimate buy-low, sell-high strategy, until the assets become nonperforming due to lack of participation. Do the calculus. The bully is his/her own worst enemy, over time. Gold and silver temporarily makes you the banker. The currency algorithm is a hash table and you are surfing the eye of the hurricane.
The path to economic profit is pretty simple really:
1 small business must disassociate from the ponzi labor certification and housing credit system;
2 communities must provide real education to the ends of self-sustainment and unique surplus;
3 the corporations and their denizens must get their f***ing hands off the kids that do not voluntarily enter the corporate system;
4 if Congress wants to go along for the ride, it must pull the Family Law relay, in its entirety; and
5 capital markets require an effective catalyst/prototype, reflecting 1-4, for restructuring.
Generational theft is the guiding principle of government intervention when the exponential cost structure preserving legacy nonperforming assets exceeds declining revenues from planetary exploitation, resulting in eminent domain (fascism) expansion with the promise of permanent government employment (socialism) on the back of temporary private employment (crony capitalism), which multiplies max accounting “income” by max nexus multiplier, borrowing long-term to fund short-term “private” employment as the basis for unsustainable government employment. How stupid is that?
After completely carving out the private sector accordingly, Congress wants to lower social security taxes on the leftover make-workers, while the Fed prints (SS, etc.) checks, exporting the resulting inflation abroad into the sovereign credit spread in the final iteration of the beggar-thy-neighbor consumption half-cycle. The weak-hearted do not determine the future and, sooner or later, the future becomes the present, depending upon economic speed/efficiency. The intelligent individual investor can and does outlast the irrational consumer market.
If you are surrounded by people who “think” more job stimulus is the answer, you might want to create some distance. Never hesitate to improve your priorities, performance measures, but do not waffle back into imbalance. Investment requires a surplus to prime the pump, but the current may not pass so long as the Family Law relay, which created the demographic wall, is engaged. The only question is the level of misery (indexed) required to reach the fear threshold created by the nexus programs. Speed to adjustment depends upon experience.
The thing about a global IC chip is that a small % of a very large irrelevant population (algebraic reduction in the bipolar economy of bipolar economies) may suddenly become significant in absolute terms, with substantial leverage on the other side, due to the effect on the margin, direction.
Globally, non-thinkers on the margin are switching polarity. Instead of “thinking” in terms of good and bad, cutting off the hypothalamus, trying to be good and resenting it, only to become bad and trigger all the genetic anxiety/consumption programs in the nexus positive feedback mechanism, they are choosing to behave intelligently, because they resent the opposite, stupidity, more, appreciating responsibility and the associated liberty with each iteration. Intelligent kids always lead the investment half-cycle because they have the relevant surplus with no overhead costs. They do not need to participate in the deception game.
In the aggregate, once a sufficient number of corporate landlords/employers are sufficiently fearful of capsizing, their behavior will modify appropriately, and the aggregate numbers will start piling up to restore economic confidence, redefined on the basis of effective investment. On the magnetic side of the fulcrum, it’s the adventure, not the destination. Life is about raising a family; everything else is a derivative. Elastic pie-maker and pie-eater circulation is required to deliver the necessary unique surplus for trade, which is the prerequisite to swap. The nexus swaps out effective memory for efficient memory. Do the opposite, until you reach the edge of tilt on the event horizon, at which point you can steer.
Take a look at the Irish population working for government here and the treatment of those in Northern Ireland versus the history of learning. Natural gas; are you f***ing joking? “Doctor, I have no indigestion;” treat yourself. There is no “top-down” pathway to economic profit. The moneychangers are the return pole on the other side of the fulcrum. Surf the sensitive periods, counter-intuitively, to adjust time/relativity on the event horizon.
In short for stupid: Have sex in or out of wedlock, with the same sex or with a monkey, drop the parents off at the retirement home, or send the kids to Nazi daycare, but DO NOT SEND YOUR F***ING GOVERNMENT TO OUR DOOR TO FORCIBLY COERCE PAYMENT OF YOUR BILL UPON PENALTY OF OUR EX-COMMUNICATION, unless you want to see “stagnating differentiation” as an anger management tool. We always have the economic motor, and we can walk out of any hurricane you are stupid enough to build out of our technology. The dominant/submissive, win/lose mentality simply builds the black hole from the participants’ toys/nonperforming assets.
The brain is a muscle; exercise it.
Personally, you take my kids, fire me, confiscate my bank accounts and identification, withdraw my work certifications, and destroy my credit, all in violation of your constitution, in an effort to bend me to your will, and you “think” you are smart? How f***ing stupid is that? Renegade traders my a**. Your computer controllers are out of control, they are foreclosing on you not me, and your solution is to print and lend dollars to the European banks? Remember AIG?
See you in Finland.
Sounds corriganesque in its sheer contemperanous exogeneity, "testis sum agnitio" to you! Bravo, but you could have said, lets rebuild from the ground up and reform the current welfare dependent democracy that is taking us to the "bleeding obvious" state of all being welfare dependent (slaves) and into a rediscovery that life without government interference is, actually, rather pleasant!
new 3y, 10y and 30y treasury settles today, simple as that