Borrowing a few charts from Cabana.
1. The current SPX rally is POMO-driven. little to do with Repo.
2. Repo should be replaced by POMO, and POMO will take the "organic" pace $8Bn/month to offset circulating currency growth (dollar bills)
(1/x)
1. The current SPX rally is POMO-driven. little to do with Repo.
2. Repo should be replaced by POMO, and POMO will take the "organic" pace $8Bn/month to offset circulating currency growth (dollar bills)
(1/x)
Foreign Repo pool no long a liquidity drain, since UST yield curve got uninverted in Oct 2019.
(2/x)
(2/x)
Secured funding (Repo) market has been very calm since POMO started in mid-Oct. The spread on the end of the month (typically either the worst or the 2nd worst day of a given month) has become getting really small (no stress)
Cabana expects 60Bn/mon POMO to end into June. (I lean towards early May), so less dramatic growth in Fed balance sheet in 2H 2020.
(4/x)
(4/x)
Cabana expects nearly flat bank reserves and TGA.
I expect TGA being dumped to $120Bn (from $400Bn) in summer/early fall 2020 --> a 2nd risk-on rally to help the elections.
post-election, TGA will be ramped back to $410Bn --> a 2nd "Repocalypse" and forcing Fed to do QE4
5/5
I expect TGA being dumped to $120Bn (from $400Bn) in summer/early fall 2020 --> a 2nd risk-on rally to help the elections.
post-election, TGA will be ramped back to $410Bn --> a 2nd "Repocalypse" and forcing Fed to do QE4
5/5
Let me clarify that this last point is my rather machiavellian take on how treasury may force Fed's hand in 2H 2020. Not a certainty, but I do see a >50% probability for this to pan out.
