- Second Term Repo Oversubscribed As Funding Shortage Keeps Getting Worse
by Tyler Durden, https://www.zerohedge.com/
Update: Step away from the panic button (at least until tomorrow).
Moments after the Fed announced that its second, expanded $60BN term repo came in oversubscribed (see below), the results of the overnight repo were also announced, and they suggested that while the funding shortage is getting worse on a quarter-end basis (which is what the term repos are supposed to alleviate), it reported that its latest overnight repo operation (which yesterday was expanded from $75BN to $100BN), only saw interest for just over half of its total size, with $50.1BN in securities ($34.55BN in TSYs, $15.55BN in MBS) tendered.
Today’s overnight repo was a sharp drop from yesterday’s $92BN, suggesting that at least on an overnight basis, the funding shortage is getting better….. but that’s at the expense of term funding, going into the fourth quarter.
So which funding shortage will dominate, and will the modest easing in overnight funding contract again? For the answer tune in tomorrow, when we will get the result of the final term repo, even as the overnight repos continue indefinitely into Cotber.
… moments ago the Fed announced results from the second Term Repo meant to address the quarter-end liquidity shortfall is what ICAP would have dubbed the worst case scenario: not only was it oversubscribed, but it was so by a whopping $13BN, as some $72.5BN in securities ($43BN in TSYs, $29.25BN in MBS, $0.5BN in Agencies), were submitted for today’s $60BN repo.
In other words, not only is the liquidity shortage getting worse, but the more liquidity the Fed provides via repos, the more liquidity primary dealers indicate they need.
And with it now appearing guaranteed that the full allotment of $250BN across term and overnight repo will be used up, we look to today’s overnight repo result in a few minutes, where if the term repo is any indication, the full $100BN allotment will be blown through with ease as banks confirm that their dollar shortage is far, far worse than anyone expected… and certainly is not going away after last week’s “one-time” tax payment and bill settlements.