FED reverse repo

budoslavic

Eagle
Orthodox
Gold Member


Fed Says May Have To Raise Reverse Repo Limits​

With the Fed's reverse repo facility hitting a new all time high today, rising to a record $1.116 trillion among 82 counterparties...

... the manager of the Federal Reserve’s open market operations, Lorie Logan, was quoted in the FOMC minutes as saying that "market participants were beginning to focus on the potential effects of changes in the Treasury General Account at the Federal Reserve and Treasury bill issuance over coming months in connection with the debt ceiling." She then said that "if a number of counterparties reached the per-counterparty limit on their ON RRP investments and downward pressure on overnight rates emerged, it may become appropriate to lift the limit."

As a reminder, the current limit is $80 billion per counterparty (rev repo usage is focused among a handful of accounts), which was raised from $30 billion in mid-March. While the average use assuming the total facility usage currently is spread evenly across the 82 counterparties is a relatively benign $13.6 billion, the fact that the Fed is discussing this eventuality means that one or more major accounts are nearing the ceiling. Expect a more in depth discussion of this from Zoltan Pozsar later today.

Separately, there was also discussion among members about the standing repo facilities that the Fed established at the July 27-28 meeting to support the effective implementation of monetary policy and smooth market functioning. Here are the highlights from the minutes:

In general, participants viewed the facilities as important new tools

A few participants raised questions, including whether the proposed aggregate cap of $500 billion was necessary, whether the collateral eligible in SRF operations should be limited to Treasury securities only, and how the setting of the minimum bid rate in SRF operations would be expected to evolve over time relative to the primary credit rate and the interest on reserve balances rate

As Bloomberg notes, the two standing facilities - domestic and foreign - serve as backstops in money markets; counterparties for domestic operations will include primary dealers and will be expanded over time to include over time to include additional depository institutions

The committee voted unanimously to approve the establishment of the domestic facility

Bowman abstained from voting on the foreign facility, noting that she would have preferred that the liquidity arrangements accessible to foreign official institutions be maintained only during periods of extraordinary financial market stress

Participants anticipated that the committee would learn more about how these facilities operate over time and noted that it could adjust some parameters of the facilities on the basis of that experience

It's worth noting that some analysts such as Barclays' Joseph Abate, were surprised by the fact that the Fed had not created a facility right from the start with a wider range of counterparties that could help the market absorb sudden surges in repo activity.
 

Dr Mantis Toboggan

Kingfisher
Gold Member
What does this mean?

"JUST IN - Fed reverse repo hits $1.116 trillion, a new record high."

A reverse repo agreement is a contract where party A purchases an asset (usually a stock or bond) from party B and then is obligated to sell it back to party B at a later date at a fixed price. In this case the Fed is buying Treasury bonds on the open market and agreeing to sell them back later at a slightly higher price. Upshot is it means injecting more cash into the system short term ie yet more inflation.

 

get2choppaaa

Ostrich
A reverse repo agreement is a contract where party A purchases an asset (usually a stock or bond) from party B and then is obligated to sell it back to party B at a later date at a fixed price. In this case the Fed is buying Treasury bonds on the open market and agreeing to sell them back later at a slightly higher price. Upshot is it means injecting more cash into the system short term ie yet more inflation.

So more printing money? Or am I missing something?

How will this benefit average consumer?
 

andy dufresne

Kingfisher
The covered up failure of the Repo market in September of 2019 was the genesis for the scamdemic. In 2019 banks no longer could borrow from each other and the fed needed to step in. Printer go brrrrr indeed.....

After it failed, they needed a way to juice the system and the fake killer flu provided the perfect solution.
 
A reverse repo agreement is a contract where party A purchases an asset (usually a stock or bond) from party B and then is obligated to sell it back to party B at a later date at a fixed price. In this case the Fed is buying Treasury bonds on the open market and agreeing to sell them back later at a slightly higher price. Upshot is it means injecting more cash into the system short term ie yet more inflation.

Repo is this but so much more (and the transactions are mind-mindbogglingly complex but for simplicity, Toboggan is correct). However, it is the financial plumbing, the backbone, for the entire global system. Although these numbers are important it's more significant what the fails are for repo, imho, (ie when the arrangements go south). Banks use "repo" for overnight funding and lube to keep things working.

Also significant is watching stress in this area to see when the banks don't trust each other or are unwilling to re-pledge collateral because they're too afraid of meltdown risk. When bank entities don't trust each other overnight...you're in for some scary times. I'll also point out how inflation-proponents can never figure out who's buying treasuries at such low rates and why...this market is partially the answer. OTR Treasuries are the most pristine of pristine collateral...and what everyone wants.

As an aside: @Roosh real estate inventory continues to go up; a sign prices will stabilize or fall. Partially seasonal, but not totally.

Edit: how the repo market came to be is also an interesting part of financial history for anyone interested. I definitely recommend reading about it.

Double edit: also, if I remember correctly, repo is anonymous for the banks so they can hide things easier (which actually makes the problem of trust among them even worse). I haven't thought about it too much but Powell raising the rate for repo recently could be window-dressing for the banking system desiring less transparency for their financials.
 
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Easy_C

Peacock
Repo is this but so much more (and the transactions are mind-mindbogglingly complex but for simplicity, Toboggan is correct). However, it is the financial plumbing, the backbone, for the entire global system. Although these numbers are important it's more significant what the fails are for repo, imho, (ie when the arrangements go south). Banks use "repo" for overnight funding and lube to keep things working.

Also significant is watching stress in this area to see when the banks don't trust each other or are unwilling to re-pledge collateral because they're too afraid of meltdown risk. When bank entities don't trust each other overnight...you're in for some scary times. I'll also point out how inflation-proponents can never figure out who's buying treasuries at such low rates and why...this market is partially the answer. OTR Treasuries are the most pristine of pristine collateral...and what everyone wants.

Correct. Everyone else: This is the kind of post that distinguishes people who know what they're talking about vs. theorists.

Keep in mind the EU is a huge part of the problem because the EU policy is that there's no more bailouts (ECB can't make it work). The Repo market is one of the key reasons such liquidity exists, and the ability to extremely rapidly transfer funds and securities through brokerages, clearinghouses, and other custodial/intermediary entities which form the settlement process is a lot of why the US financial system has worked as well as it does for so long (I'm talking more about mechanical process and things like how your employer can hit the "process payroll" button and the transaction has settled in your bank account 36 hours later).

One thing Armstrong had pointed out is that nobody wanted to talk about this in the business because they were terrified they might do more harm than good by starting a panic AND get blamed for doing so. I don't think it is entirely coincidental they started to implement the Great Reset almost immediately after the Fed was forced to intervene in the Repo markets ( a clear sign that the system was breaking).
 

Blade Runner

Ostrich
Orthodox
Correct. Everyone else: This is the kind of post that distinguishes people who know what they're talking about vs. theorists.

Keep in mind the EU is a huge part of the problem because the EU policy is that there's no more bailouts (ECB can't make it work). The Repo market is one of the key reasons such liquidity exists, and the ability to extremely rapidly transfer funds and securities through brokerages, clearinghouses, and other custodial/intermediary entities which form the settlement process is a lot of why the US financial system has worked as well as it does for so long (I'm talking more about mechanical process and things like how your employer can hit the "process payroll" button and the transaction has settled in your bank account 36 hours later).

One thing Armstrong had pointed out is that nobody wanted to talk about this in the business because they were terrified they might do more harm than good by starting a panic AND get blamed for doing so. I don't think it is entirely coincidental they started to implement the Great Reset almost immediately after the Fed was forced to intervene in the Repo markets ( a clear sign that the system was breaking).
The convergence of chaos and the sovereign debt crisis is too obviously connected with the BS corona stuff that it makes you really think that although it is clearly a short on long con perpetrated by the global powers that be, it is much more connected to just pure chase the money than purely nefarious activity. The latter is also there, it's just an added bonus and pet project the douche bags like Gates love to pursue.

At this point, with the fraud of sarscov2 and elections, the joke of a president and world policy, not to mention domestic, it seems quite likely that 2022 will be the year the crack finally extends to the ground level. I think the madness can continue maybe til next summer, but I'll be out of many if not all positions by then.
 
Correct. Everyone else: This is the kind of post that distinguishes people who know what they're talking about vs. theorists.

Keep in mind the EU is a huge part of the problem because the EU policy is that there's no more bailouts (ECB can't make it work). The Repo market is one of the key reasons such liquidity exists, and the ability to extremely rapidly transfer funds and securities through brokerages, clearinghouses, and other custodial/intermediary entities which form the settlement process is a lot of why the US financial system has worked as well as it does for so long (I'm talking more about mechanical process and things like how your employer can hit the "process payroll" button and the transaction has settled in your bank account 36 hours later).

One thing Armstrong had pointed out is that nobody wanted to talk about this in the business because they were terrified they might do more harm than good by starting a panic AND get blamed for doing so. I don't think it is entirely coincidental they started to implement the Great Reset almost immediately after the Fed was forced to intervene in the Repo markets ( a clear sign that the system was breaking).

Thank you, Easy_C. I take that as quite a compliment. For context: despite how arrogant I can be on other topics this is one which I would pay almost anything to have a better understanding in every sense of the word. It's that crazy.

To your comment about repo intervention: yes, very "coincidental" that Covid-19 became a thing right as the monetary system looked set to go down the toilet for good.

But REVERSE repo?

Usually when people say "repo" it's meant to cover it all, including reverse.
 

Australia Sucks

Kingfisher
On a somewhat tangential topic perhaps the brains trust on this thread can give their thoughts on what the now deceased professor Antal Fekete kept going on about how gold futures are spending a lot of time in backwardation in recent years and how this is a canary in the coalmine.
 

Dr. Ron

Pigeon
Orthodox
Gold Member
Double edit: also, if I remember correctly, repo is anonymous for the banks so they can hide things easier (which actually makes the problem of trust among them even worse). I haven't thought about it too much but Powell raising the rate for repo recently could be window-dressing for the banking system desiring less transparency for their financials.

The reason that the federal reserve raised the funds rate was to use reverse repo as a form of yield curve control to prevent interest rates from hitting zero, and then going negative. The problem is that interest rates WILL go negative regardless of this because the fed is also pumping ~140 bil into the financial system every month in the form of asset purchases which in turn causes the yield curve to flatten out unless the fed tapers off printing, but if they do that there is the potential of a market crash. Hence quantitative easing cannot stop, and we are driving ourselves right off a cliff once interest rates go negative.

This video explains what is going on in more detail.
 

Dissimilarty

Sparrow
Orthodox Inquirer
The reason that the federal reserve raised the funds rate was to use reverse repo as a form of yield curve control to prevent interest rates from hitting zero, and then going negative. The problem is that interest rates WILL go negative regardless of this because the fed is also pumping ~140 bil into the financial system every month in the form of asset purchases which in turn causes the yield curve to flatten out unless the fed tapers off printing, but if they do that there is the potential of a market crash. Hence quantitative easing cannot stop, and we are driving ourselves right off a cliff once interest rates go negative.

This video explains what is going on in more detail.

When have yields gone negative for any sustained period other than as a result of a central bank purposely mandating them?
 

Dissimilarty

Sparrow
Orthodox Inquirer
But REVERSE repo?
Context: For ten plus years the Fed has been buying various assets including US treasury bonds to keep interest rates low and asset prices high.

Banks try to have as much "money" as possible in the highest earning assets it can every day and night. However, they are also required to meet certain regulatory requirements such as a certain reserve ratios. Sometimes banks need to increase their "money" as compared to their assets. Traditionally they do this by entering a repo agreement with another bank, eg. Bank A needs "money" to meet their overnight requirement while Bank B has more "money" than they need overnight. Bank B will lend Bank A "money" in exchange for some interest bearing asset of Bank A. Then Bank A will pay some amount back to Bank B and repurchase the interest bearing asset.

With all the stimulus from covid banks are now swamped with reserves:


Thus, theres not really that much usage of this interbank repo market. Banks arent needing "money" to meet their requirements. And so no bank is going to offer an interest bearing asset for "money" they dont need.


Except for the Federal Reserve. They will. Thus the reverse repo.

 
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