Thread by @gamesblazer06

trades off to 97.64 from a recent peak of 99.37 in Sep ‘19... took $215B of Fed Repo & Promises to take Reserves up to a total of +$1Trillion.. & that’s the Sell Off? #Sad can’t even get below the 200 day moving average? Can’t even get GC Repo < IOER -> Very #Sad

All the September faux MoMo Bulls...all hiding in the FBI Witness Protection Program. Here’s a reason to get out.. It’s the highest yielding currency in DM. US growth now grinding down to a screeching halt.. Europe & Japan way worse.. ECB & BOJ will never be outdone by Fed.

D for the Dollar... D for Deflation.
#LateCycle

One year later... how much has FRA OIS changed? ~The Square root of Zero.

Repo....& Shortages back. This is that time when Prime Brokers start to say sorry “off the desk.”

#BalanceSheet #GSIBSurcharge

bloomberg.com/news/articles/…

Despite insane amount of Fed Repo in amount of $190B/Day that started in Mid Sep ‘19 + “It’s Not QE”...Yr end Turn has gotten Worse..FRA OIS wider than when Fed did first $75B in Repo. Bank Balance Sheet & Shortages remain acute.
@RaoulGMI @MacroMorning @GS_CapSF

BN: “Fed’s Money Market Fix May Be Affecting Where People Park Cash.”

Fed RRP Usage now spiking way over & above normal usage spike from GSE P&I cash that normally comes in mid month. (See chart). They can’t even print QE w/o slashing IOER to ZIRP. @RaoulGMI @MacroMorning

“Traditional front end cash investors getting crowded out of by Fed buying Bills & offering Repo.”

“One potential effect in Reverse Repo usage is to drain reserves from banking system, in effect acting as headwind to efforts by Fed to bolster reserves & stabilize short end.”

Cc @Stimpyz1 @GS_CapSF

Fed RRP usage got as high as $712B wanted to drain reserves to enact its maiden hike in ‘15.. now this time they are printing “It’s Not QE (4)” & goes to Fed RRP & gets temporarily destroyed while leaving the Banking system. Fix is slashing IOER

Skating to where Zoltan puck might be (so far unpriced upside risk) Fed RRP so far just Foreign CBs coz they get super high front end rate (miles > IOER)..but like in ‘15 composition could start skewing towards MMF (2a7s/GSEs) & drain further as Bills yields go lower.

Importantly when the Fed vomits Liquidity into system via Fed Repo + digitally prints “It’s Not QE4”.. Even Foreign CBs are incented to sell Bills & go bigger into RRP w zero duration risk.. & take Bank deposits (whose yields r dropping like a rock w IOER) & lend 2 Fed RRP.

Fed’s trying to put water in a Bucket w QE4...& the Fed RRP is akin to major perforated holes that drain it right back out. Spoiler alert... there’s no easy fix like getting rid of RRP.. which is needed 2 drain reserves if there’s a whiff of inflation & the Fed needs 2 hike IOER.

Even those who dream of world where there is free market STIR complex w banks adjudicating liquidity via Pre GFC Fed Funds market amongst each other.. u can’t get back 2 corridor system unless u drain all reserves aka.. QT.. we all saw what happened w that 4Q18 root canal..

No Pain No Gain....

But wait there’s more..Flight To Quality Credit Risk..when that gets going w rising C&I Credit Costs...RRP usage could be put on steroids..as 2a7/FHLB value not only Arb between Bills/Deposit prices & Fed RRP but also Zero Credit Risk at Fed.


newyorkfed.org/medialibrary/m…

Investors w access to Fed RRP aren’t going to wait for Bankruptcies to choose Fed RRP in a recession/slowdown (curves inverted already) vs Banks..just need 2 see rising credit costs at banks..already happening especially at banks.
NCOs still v low but creeping higher.

After 0 Bank Failures In 2018. We saw 4 Small Regional Bank Failures In 2019:

City National Of NJ: 11/1/19
Resolute Bank, OH: 10/25/19
Louisa Bank, KY: 10/25/19
Enloe State Bank, TX: 5/31/19

E.g. Shale Energy CCCs gets stressed (oh wait)...& need their Banks to fund stressed C&I revolving loans...can someone tell me who will be doing that banks? When their deposits (CASH) get hammered, drained & lost to Fed RRP on Arb & Credit? Then add in RLAP/LCR/GSIB/SCB Regs

That may be too many dots to connect & considered a tail risk.. when VIX shorts r in a -3.2 Sigma left tail.. when that unwinds.. & it will..there may be many wondering why Banks who used 2 see huge deposit inflows in stress/providing cash 2 arrest pro cyclicality..r gonzo.

The Fed RRP Petri Dish part of the Lower Bound of the QE Broken Floor System never existed Pre GFC.. what a mess! Thx Fed.

FHLB Boston Overnight “Rate Specials”?

1.83% today or 28bps > IOER... but I was told by the Fed that Repo & shortages were totally under control? Weird. If that’s a special I can’t wait till year end.

“Money market investors appear to be starting to use Central Bank’s RRP Facility as a work around.”

“But this is the Opposite - Taking Cash Out of the System Effectively Countering the Move to Bolster Reserves. @RaoulGMI @MacroMorning @GHBurnsCFA


google.com/amp/s/www.bloo…

Doesn’t name say it all? Repo adds & Reverse Repo subtracts from System...trades at odds w each other.. Floor System is broken so Fed will have to slash IOER to ~ZIRP so their liquidity bucket won’t hemorrhage cash thru RRP. EDZ1C 99.75s making an LL Cool J comeback.

Still high... 1.85% this morning despite Fed action. Very important for swing liquidity for & despite fact that Fed Funds is a shell of itself Post GFC.

You always find out what’s really going on at the marginal have not banks.

Despite all the Fed dump.... still FHLB swing liquidity is +32bps > IOER.

“It’s Not QE” & It’s Not Working.

#QE4 #PrintingPress
@RaoulGMI

GC Repo now higher at 1.68%...
Praying for sponsored Repo for year end GSIB scores to net out?
Good luck Levered Hedge Funds.

US GSIB Bank LCR ratios continuing to get shellacked in 3Q19.. Reserves in Banking System continue to deplete (albeit stabilize a bit Post QE4)...given TGA & RRP drain...this is prior to distribution issues. Includes the worst at 110% -> Sponsored FICC Repo maven.

Got year end Sheet?
These guys don’t.... liquidity dry as a bone thus the Fed action... that is too little too late...especially 4 year end. Cash is not moving through the pipes coz of GSIB Scores.

Don’t expect to Bail everyone out... barely have $200B of cash at 3Q19...Post GFC for the most complex GSIB in world via 3.5% Surcharge..that’s aka Running on Fumes...They are however, stuffed with (Level 1 Secs) & Reverse Repo. @Stimpyz1 @RaoulGMI @DiMartinoBooth