What's going on?
Bloomberg reports a rise in overnight funding rates to record levels.
United States. Money market rates rose for a second day on Tuesday, as cash reserves in the banking system were not in equilibrium with the securities volume in the dealer balance sheets.
Under Pressure, the effective Fed Funds rate rose to 2.25%, which is the upper limit of the Federal Reserve's target range of 2% to 2.25%.
The overnight overnight interest rate rose more than 600 basis points to 8.75%, based on the ICAP price, before returning to 7.25%. , Surges are the order of the day only at the end of the quarter and at the end of the month, so market participants had expected the situation to return to normal.
Monday night's overnight GC repos rate increased 248 bps to 4.75%, the highest since ICAP pricing since December in the wake of treasury coupon auctions and the inflow of quarterly corporate tax payments, possibly compounded by the sell-off in the bond market last week, during which investors sold securities back to traders.
Separately collateralized The Overnight Financing Rate, which is supported by overnight GC repo transactions, rose from 2.20% to 2.43% on Monday, data from the New York Fed show. This is the highest level since the 31st of July.
Federal Reserve feeds $ 75 billion into the financial system
The Financial Times reports that the Federal Reserve is injecting billions of dollars into the financial system
TD securities point a finger at bank reserves.
We believe that the culprit is the scarcity of bank reserves, which are the only good that provides banks with intraday liquidity. Reserves have been declining since 2014, and we expect them to continue to decline as Treasury cash registers increase and cash flow increases .
The Fed seems to have solved the problem with the $ 75 billion injection. Repo rates have fallen again for the time being.
One reader commented, "Analysts said there were technical factors that pushed the repo market, not the systemic problems that caused daily rates to increase significantly during the financial crisis Factors? "
Sometimes there is a bottleneck at the end of the month, but this happened on 16 September and again on 17 September.
"This mid-month surge was attributed to a confluence of events that weighed on US liquidity reserves. The banking system is not in equilibrium with the volume of securities traded on the dealers' balance sheets: a corporate income tax settlement date; Last week's auctions and last week's sell-off on the bond market where investors redeemed securities to traders. "
After all these years still crazy
On Friday we also quadrupled witch
. Quadruple witchcraft refers to the third Friday of every March, June, September and December. Market index futures, market index options, stock options and stock futures expire on these days.
Wall Street Journal Heralds
The Wall Street Journal Announces Fed Steps in the Repo Market to Control Interest Rates
Scott Skyrm, a repo trader with Curvature Securities LLC, said he had a cash deal on Tuesday seen a repo rate of up to 9.25%. "It's just crazy that the courses can easily get that high," he said.
On his trading screens, Mr. Skyrm said he could see traders with securities they wanted to exchange for cash. The interest rates offered by them would rise until an investor with tradable funds accepted their bids, gradually lowering the repo rates until investors used up their money, he said. Then the interest rates would rise again.
There are technical reasons for the high demand for cash this week, including the payment of corporation tax, the repayment of recently issued treasury securities and the move towards the end of the quarter. & # 39; It seems that this explains the "crazy market volatility," Skyrm said.
" It seems there's something out there we do not know about ," Skyrm said.
Someone badly needed cash and got it .
Mike "Mish" Shedlock