Thread by @modernhomesla

~REPO-MAN~

4 1st time since 2008
central bank
injects funds
N2 money mrkts
after sudden
*shortage of cash

Pressures relate 2
shrtgs of funds
banks face
resulting from increase n
federal borrowing +
central bank’s decision
2 shrink size of its
securities holdings
in recent yrs.

Fed reduced
securities holdings
by not buying new ones
when they matured,
effectively taking money out
of the financial system.

So, there's that.

New York Fed
moved 2 inject $53B
N2 banking system
thru trannys known as
repurchase agreements, or repos.

wsj.com/articles/fed-t…

Bank said it would
inject up 2 $75B more📌
on Wed a.m.,
but many in mrkt
looking beyond that decision.

Eww👇
“Market will b waiting 2 see
if Fed makes this
more permanent part of playbook,”
says fuqq-face Beth Hammack,
Goldman Sachs Group Inc. treasurer.
wsj.com/articles/fed-t…

Fed policy makers
set their target range
2 influence suite of
short-term rates
at which banks lend 2 ea other
in overnight markets;
but those rates r ultimately
determined by mrkts.

If various operations in mrkts fail,
fed-funds rate
can deviate significantly
from target.

In short run
this likely affects
only market participants
who borrow in
overnight markets,

but if strains last long enough
it can affect
rates other businesses
+ consumers pay.
wsj.com/articles/fed-t…

Such deviations
also undercut
Fed’s ability 2 keep
economic expansion on track
thru monetary policy,
such as
by lowering rates
2 provide boost +
raising them 2 prevent economy
from overheating.

wsj.com/articles/fed-t…

Rising rates
in overnight lending markets
“are clearly not desirable
because they impede the transmission
of monetary policy decisions
2 the rest of the economy,”📌
said Roberto Perli,
analyst at Cornerstone Macro.

wsj.com/articles/fed-t…

Fed likely will cont 2
provide funding
2 ensure smooth operation
of repo market 4 some time,
altho it isn’t clear how long
that might be,
analysts said.

📌“This is in every way, shape + form
an emergency measure,”
said Gennadiy Goldberg,
fixed-income strategist at TD Securities.

NY Fed
hasn’t had 2 intervene
in money mrkts since 2008
bc during + after finan crisis,
Fed flooded finan sys
w reserve;
$ banks hold at Fed.

It did this
by buying 100s of billions of $$s
of Treasurys + mrtg-backed securities
2 spur growth
after cutting int rates 2 nearly zero.

~BINGO~

"Reserves over last 5 yrs
have been declining,
after Fed stopped increasing
its securities holdings
+ later, in 2017,📌
after Fed began shrinking holdings.

Reserves have fallen 2 less than
$1.5 trillion last wk
from peak of $2.8 trillion."
wsj.com/articles/fed-t…

Fed stopped shrinking
its asset holdings last mo,
but bc other Fed liabilities
such as currency in circulation
+ Treasury’s general financing account
r rising,
reserves r likely 2 grind lower
in wks + mos ahead.

[i.e. not good.]
Steve Mnuchin
is mobbed.
wsj.com/articles/fed-t…

In addition,
brokers who buy + sell Treasurys
have more securities
on their balance sheets
due 2 increased govt-bond sales
2 finance rising govt deficits. 📌

[truth is,
our economy,
not performing well.
tRUmp + Team Failure
suqq at everythin
cept suqqin]
wsj.com/articles/fed-t…

Then on Monday,
corporate tax payments
were due 2 Treasury,
+ Treasury debt auctions settled,
leading 2 lrg transfers of cash
from banking system.

Surge in repo rates began
Mon afternoon, well after
vast majority of trading in mrkt
4 overnight loans
typically takes place,

Origin of
demand 4 cash was unclear,📌
as traders seeking cash
could have been acting
on their own behalf
or as intermediaries
4 other parties.

Unexpected bids
seeking cash entered market
at time traders said
was uncomfortably close
2 3 p.m. deadline
4 settling trades.

Scott Skyrm,
repo trader at
Curvature Securities LLC
had seen cash trade in repo rate
as high as 9.25% Tuesday.
“It’s just crazy
that rates could go
so high, so easily,” he said.
wsj.com/articles/fed-t…

BANK execs 📌
have warned regulatory changes,
such as a rule
requiring banks 2 hold enough
high-quality liquid assets
2 fund cash outflows 4 30 days,
*could lead 2 funding strains.

wsj.com/articles/fed-t…

Oh Dear.

Pardon
Murdoch expression
2 alert folks of

*MarketWatch.
👁️🔥👁️

Has Repo-Man arriveth?

@RussellSieg
@ninaandtito
@wokyleeks
@YDanasmithdutra
@ericgarland
@HatesHorseshoes

Seems a bit *odd.

"Does Mnuchin know wat he doing?"
😏

@threadreaderapp please unroll 4 daddy.