Thread by @JeffSnider_AIP

The question is, what has global bond markets so spooked? Using TIC, we can construct an answer.

The first part begins where the eurodollar system did: onshore/offshore dollar connections btw US banks & foreign subs.

alhambrapartners.com/2019/07/12/wha…

That's a QUARTER TRILLION in dollar funding sent offshore to those subs recently. And it reverses the trend established in the 2011 crisis (Euro$ #2). Suggests, emergency funding, or at least extra-ordinary conditions requiring re-activation.

On top of that, the repo market has been unbelievably active (wonder why repo rates are high, has nothing to do with T-bills). Again TIC. An additional $325.8 billion has been funded to offshore entities (called resales here).

That's $580 billion which has moved offshore - during and following what was clearly a global monetary (and economic) landmine October to December (continuing and persisting in 2019).

Aside: why are bond markets rallying, this flight to liquidity? Answer: all this repo demand.

HERE's THE QUESTION: are we encouraged that US banks were willing and able to shotgun more than half a trillion in US$ funding to both their foreign subs (most likely to be redistributed) as well as the wider eurodollar funding market...

...or are we very, very concerned that there is, up to this point (meaning April), an almost $600 billion hole which has opened up and persisted in those same markets since last October?

Taking the latter question, that’s the only difference between 2019…and 2008. Unlike during the Global Financial Crisis, in 2019 the channel between offshore and onshore remains open (it closed starting 2007, therefore global panic).

What if it doesn’t?

Even contemplating what right now is only a possibility, you might be more than a little nervous about how it is a very real one. Especially if you are knee-deep in offshore funding risk. What is it that must be spooking global dollar and bond markets right now?

There you go.

alhambrapartners.com/2019/07/12/wha…