Repo Market

Tyler Durden's picture

As Madoff Airs On TV, Two Anonymous Whistleblowers Are Pounding On The SEC's Door Again





Investment expert, Harry Markopolos, wrote detailed letters to the SEC for years, raising red flags that Bernie Madoff was running a Ponzi scheme – only to be ignored by the SEC as Madoff fleeced more and more victims out of their life savings. Today, there are two equally erudite scribes who have jointly been flooding the SEC with explosive evidence that some Exchange Traded Funds (ETFs) that trade on U.S. stock exchanges and are sold to a gullible public, may be little more than toxic waste dumped there by Wall Street firms eager to rid themselves of illiquid securities.

 
Tyler Durden's picture

And You Thought QE Was Over: The Fed Will Monetize Half Of This Year's U.S. Treasury Issuance





The Fed may have officially tapered QE at the end of 2014 but that doesn't mean it is done buying Treasuries: since the Fed never ended rolling over maturing paper, it means that it will remain indefinitely active in the open market. And while there were no sizable maturities from the Fed's various QEs to date (only $474 million in 2014 and $3.5 billion in 2015) that will change dramatically this year, when Brian Sack's team will have to purchase about $216 billion to replace matured TSYs. According to JPM calculations, this represents half the net new government debt that will be issued over the next 12 months.

 
Tyler Durden's picture

Nothing "Schizophrenic" About Today's Abysmal 5 Year Auction





We were fully expecting not only a tail, but a whopping tail in today's weak market. And that is precisely what we got when moments after we learned that the When Issued was trading at 1.774% before the 1pm announcement, the 5 Year printed at 1.78%, a tail of 1.1 bps, a mirror image of yesterday's squeeze into the auction!

 
Tyler Durden's picture

Repo Experts Stumped: How Could Fed Hike Without Draining ANY Liquidity: "This Is A Market By Decree"





"The Fed didn't really drain any liquidity yesterday. They moved the IOER up to .50%, moved the RRP rate up to .25%, and the RRP volume came in at $105 billion, only $3 billion more than the day before. Where was the draining? But interest rates moved up anyway to reflect the tightening, without any fundamental change. Basically, the Fed decreed a rate tightening and the market moved rates higher.... I wonder how many economic interest rate models include "by decree" as a factor?"

 
Tyler Durden's picture

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





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.

 
Tyler Durden's picture

Ever Greater Distortions Hint At Rising Crash Probabilities





Government interference by both central banks and regulators (the latter are desperately fighting the “last crisis”, bolting the barn door long after the horse has escaped, thereby putting into place the preconditions for the next crisis) has created an ever more fragile situation in both the global economy and the financial markets. As the below charts and data show, price distortions and dislocations have been moving from one market segment to the next and they keep growing, which indicates to us that there is considerable danger that a really big dislocation will eventually happen.

 
Tyler Durden's picture

BIS Warns The Fed Rate Hike May Unleash The Biggest Dollar Margin Call In History





"While funding continued to be available, such a large negative basis indicates potential market dislocations. And this may call into question how smoothly US dollar funding conditions will adjust in the event of an increase in US onshore interest rates. Similar pricing anomalies have also emerged in interest rate swap markets recently, raising related concerns."

 
Tyler Durden's picture

Why The Euro Didn't Drop (Despite Payrolls 'All Clear' For Fed)





The positive US payrolls report has sent December rate hike odds up to around 80% and along with the 'all clear' from Hilsy, one would expect relative 'strong dollar' flows front-running the divergent policy directions about to be undertaken by The Fed. However, EURUSD continues to rise this morning... here's why... (until Draghi puts everyone straight)

 
Tyler Durden's picture

Why The Fed Has To Raise Rates





Whether or not the Fed actually manages to raise rates in the real world is less important than maintaining USD hegemony. No empire has ever prospered or endured by weakening its currency.

 
Tyler Durden's picture

"But It's Just A 0.25% Rate Hike, What's The Big Deal?" - Here Is The Stunning Answer





"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."

 
GoldCore's picture

Global Bond Markets: Where Did All the Liquidity Go?





The world is awash with debt. With central banks increasing their balance sheets through quantitative easing, simultaneously pushing down interest rates and taking huge chunks of the market out of circulation, investors have had to stray beyond developed market government bonds in search of yield.

 
Tyler Durden's picture

What A Negative Swap Spread Really Means (Spoiler Alert: Nothing Good)





Swap spreads recently took a nosedive and are once again trading at negative levels, even for shorter maturities. This market perversion suggest that Wall Street is a safer counterpart than the very institution that underwrites the whole fractional reserve fraud in the first place. To price in a higher risk premium on the US government than on US banks is a contradiction in terms so there need to be another explanation behind this puzzling market phenomenon... There is, and you're not going to like it.

 
Tyler Durden's picture

Overstock Holds 3 Months Of Food, $10 Million In Gold For Employees In Preparation For The Next Collapse





"What do we do as a business so that we would be prepared when the next crash happens. One thing that we do that is fairly unique: we have about $10 million in gold, mostly the small button-sized coins, that we keep outside of the banking system. We expect that when there is a financial crisis there will be a banking holiday. I don't know if it will be 2 days, or 2 weeks, or 2 months. We also happen to have three months of food supply for every employee that we can live on."

 
Tyler Durden's picture

Bernanke Says Economy Needs To Crash Periodically So We Can Be Sure We're Pushing It Hard Enough





"My mentor, Dale Jorgenson [of Harvard], used to say — and Larry Summers used to say this, too — that, ‘If you never miss a plane, you’re spending too much time in airports.’ If you absolutely rule out any possibility of any kind of financial crisis, then probably you’re reducing risk too much, in terms of the growth and innovation in the economy.”

 
Tyler Durden's picture

Peak Debt, Peak Doubt, & Peak Double-Down





Investors are too complacent (the Minsky-Moment).  Too many are still trying to profit from the Fed subsidy of past stimulus. Investors remain loaded in risk assets, incentivized by the need to beat peers and benchmarks and comforted into complacency by the Fed ‘put’. The true level of risk is being ignored. The pervasive mentality of seeking maximum risk has become a terrible risk/reward trade for two main reasons...

 
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