“But It’s Just A 0.25% Rate Hike, What’s The Big Deal?” – Here Is The Stunning Answer

• “But It’s Just A 0.25% Rate Hike, What’s The Big Deal?” – Here Is The Stunning Answer
  by Tyler Durden, www.zerohedge.com 
  … But assuming the Fed is still intent on hiking at all costs, and does just that in two weeks time, a question many are asking is where will General Collateral repo trade in case the Fed does decided to push rates higher by 0.25%: 
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  And much more importantly, what are the liquidity implications from such a move. For the answer we go to the repo market expert, Wedbush’s E.D. Skyrm. Here are his thoughts:
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  Where will General Collateral trade when the fed funds target range is moved 25 basis points higher to .25% to .50%? In the most simple method, GC has averaged about .15% for the past month, which implies a GC rate around .40% after the Fed move.
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  However, given the unprecedented amount of liquidity in the financial system, there’s a belief the Fed will have problems moving overnight rates higher.
  …. 
  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.
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  If readers didn’t just have an “oops” moment, please reread the last bolded sentence until they do, because it explains precisely what the market is missing about the Fed’s rate hike cycle: according to Skyrm’s calculations, to push rates by a paltry 25 bps, the smallest possible increment, what the Fed will have to do is drain up to a whopping $800 billion in liquidity!
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  Putting that in context, QE2 – which pushed the S&P higher from November 2010 until June 2011 – was “only” $600 billion. 
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  In other words, to “prove” to itself that it is in control and the economy is viable, the Fed will effectively conduct, via reverse repo, an overnight QE2…. only in reverse. 
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  For those who think this will have a positive, or even neutral, impact on risk assets, we have several bridges located in Brooklyn that we are looking to offload at 150% of par. Please send your BWICs to the usual address.
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  read more.

[youtube=https://www.youtube.com/watch?v=2C7Fd9Qt3ac]

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