Thread by @Trinhnomics

Good morning! Super beautiful in Hong Kong today w/ sunny sky & cooler weather 🍂. It is Friday & it is all about the dollar (of course China loan prime rate & whether will cut MLF to lower LPR).

Let's talk about what happened last night in repo.

https://twitter.com/Trinhnomics/status/1174138309028659201

When the Fed drops 25bps, repo rates dropped too! Repo (collateralized lending for very very short - 1 day), dropped to 1.8% & there was a lot of demand!

Bid was 83.9bn & accepted 75bn (max 75) & 55.8bn UST accepted at 1.8%. Reverse repo was 5bn at 1.7%

Demand for USD strong🤗!

Just so u know, b/c the term is 1day, these things expire so the Fed is just rolling this stuff over so don't get excited about this taking over quantitative easing. This is just open market operations to ensure that there's enuff liquidity/supply for $ to keep rates @ Fed target

Btw, this is what it looks like in terms of after the Fed meeting in implementation of operations to maintain the upper target of 2% & lower target of 1.75%.

If u don't understand this, read the earlier posts for explanation of how central banks do it.

PBOC looks like this: Notice that not everything that u see here is the same as the Fed as it has other tools like targeted lending, window guidance (EM use this a lot), regulatory - macroprudential measures etc.

Can use ur understanding of Fed to understand OMO for China 👇🏻

Bloomie has a PBOC OMO excel tracker that you can pull up & it shows u injection/withdrawal & net injection.

Looks like this weekly & monthly (shows assets too)

In case you are wondering, this is what the repo that you saw in the Fed balance sheet (75bn lent out):

I underlined that in repurchase agreements 👇🏻👇🏻👇🏻

What the repo volumes historically - stopped doing repo since 2008 & only restarted this wk.

Why? Zero interest rate policy + injection of money via quantitative easing (Fed balance sheet when from close to zero (<1trn) to hero >4.5trn).

W/ QT & PIRP demand for USD strong 💪🏻💪🏻