- Repo Market Guru: “Whatever Changed Last Week Is Clearly Still A Problem”
by Tyler Durden, https://www.zerohedge.com/
Last week around this time, most of the self-described repo experts on twitter and elsewhere were pounding the table, screaming to anyone who would listen that the unprecedented spike in overnight general collateral repo from 2.25% to 10% was a non-event, and reflects one-time items such as the mid-September tax remittance, the rapid build up of cash in the Treasury’s general account and a flurry of Treasury settlements.
Alas, as we warned, and as the NY Fed today confirmed, the sudden heart attack in the critical, overnight funding market has turned out to be anything but a one-time event. First, as we saw first thing this morning, the latest repo overnight repo operation was the most oversubscribed yet, with $91.95BN in securities tendered for $75BN in reserves, the most yet since the Fed resumed these “unclogging” operations after a decade plus hiatus.
However, the big surprise came later on Wednesday morning, when in an “unexpected” move, the Federal Reserve expanded the size of its two dollar funding operations, the overnight and term repo, from $75BN to $100Bn, and from $30Bn to $60BN heading into quarter-end, effectively injecting up to $250 billion in funding ($30BN in already concluded term repo as well as two $60BN term repos yet to come, together with the $100BN overnight repo, assuming full allottment on all operations, for a grand total of $250BN).
The problem, as Hartnett also identified, is that this will take the central banks’ balance sheet to new all time highs, resulting in the biggest asset bubble in history getting even bigger… and setting up the world for an even greater crash when the fed’s pushing on a string fails. And while nobody knows when that will happen, the fact that the financial system nearly collapsed last week even with $1.4 trillion in “excess” liquidity for reasons still unknown, means that like a great white shark, the market now needs constant liquidity injections, or else it will collapse.