Ahead of today’s huge liquidity drain, that in keeping with some calculations will be the maximum amount as $100 billion between $54BN in coupon settlements from last week’s Treasury auctions and a further $50 billion roughly in company taxation payments to the Treasury…
… that combined would be as massive, if not larger than the Sept sixteen money transfer to the Treasury that sparked the time period repo crisis, last Thursday the Fed announced a “kitchen sink” liquidity tidal wave, throwing the maximum amount as $500 billion in liquidity backstops within the kind of dilated and extended repo and term repo operations, whereas keeping the Fed’s “Not QE” Treasury obligations validation chugging on.
Turkey’s financial organisation Cuts One-Week Repo Rate to twelve-tone system
The first of those emergency repo operations was scheduled for this morning, earlier than the liquidity drain, within the kind of a $50 billion, 32-day repo, which took place shortly once 8am, and was additional|another time|yet again|all over again} sold as there was more demand for liquidity, or $54.25 billion, than there was total offer.
Specifically, Dealers submitted $29.850BN in Treasury securities, and $24.4BN in MBS, at stop out rates of one.56% and 1.58%, severally, and that each came in additional than absolutely signed relative to the $28.759BN in TSYs, and $21.241BN in MBS accepted.
This giving, that matures on January17, 2020, was the fourth “turn” repo providing funding past the year-end amount.
The fact that the operation was sold was the primary indication that banks square measure once more reserve-constrained and scrambling to obtain the maximum amount year-end liquidity as they will get their hands on. whether or not repo operations within the coming back days square measure sold can indicate if the Fed’s roughly $500 billion in repo Roman deity scheduled for successive four weeks are enough to stay the Fed from losing management over long rates, as Credit European country repo skilled Zoltan Pozsar foreseen last week in his now infamous “Countdown to QE4” report.
One ominous sign: the long G/C repo rate spiked from one.58% on Fri to one.69% this morning, the very best print since the top of the Nov, and also the clearest indication nevertheless that despite throwing a sink of liquidity within the market, some dealers and banks square measure still having issues obtaining access to a lot of required liquidity.
Keep a watch on the repo rate over successive few hours for a sign if today’s $100 billion liquidity drain can overpower the Fed’s preventive liquidity tidal wave, in impact triggering Zoltan Pozsar’s worst-case situation.