The NY Fed spent $53 billion to rescue the overnight lending market

[TheCount]

Borrowing rates skyrocketed on Tuesday in a corner of the markets the public rarely notices but that is critical to the functioning of the global financial system.

The spike in overnight borrowing rates forced the New York Federal Reserve to come to the rescue with a special operation aimed at easing stress in financial markets.

It was the NY Fed's first such rescue operation in a decade, the last occurring in late 2008.

"It's unprecedented, at least in the post-crisis era," said Mark Cabana, rates strategist at Bank of America Merrill Lynch.

On Tuesday morning, the NY Fed launched what's called an "overnight repo operation," during which the central bank attempts to ease pressure in markets by purchasing Treasuries and other securities. The goal is to pump money into the system to keep borrowing costs from creeping above the Fed's target range.

The first attempt by the NY Fed was canceled because of "technical difficulties." Minutes later, the NY Fed successfully injected $53 billion into the system.

The episode demonstrates evidence of emerging strains in financial markets and raises concern that the Federal Reserve could be losing its grip on short-term rates.

"The funding markets are clearly stressed," said Guy LeBas, managing director of fixed income strategy at Janney Capital Markets. "It's going to require Fed action."

The NY Fed announced plans late Tuesday to hold another repurchase agreement operation on Wednesday that would aim to repurchase up to an additional $75 billion.

https://www.cnn.com/2019/09/17/busin...fed/index.html


$53 billion in 15 minutes.

[Brian4Liberty]

The rate on overnight repurchase agreements hit 5% on Monday, according to Refinitiv data. That's up from 2.29% late last week and well above the target range set in July by the Federal Reserve, which is 2% to 2.25%. The surge continued Tuesday, with the overnight rate hitting a high of 10% before the NY Fed stepped in.

Hmmm. Overnight rate hits 10%, and Mnuchin wants a 50 year with a rate near zero? Good thing the overnight is not factored into the yield curve.

So supply and demand says that there was demand for overnight loans, but not enough money to loan, so rates went up. Thus the Fed buys Treasuries, which are competing to borrow money, to reduce demand and help lower rates. Seems that there is too much borrowing going on, and the government borrowing is distorting markets to the breaking point.

Nothing to see here, move along.

[Brian4Liberty]

The rate on overnight repurchase agreements hit 5% on Monday, according to Refinitiv data. That's up from 2.29% late last week and well above the target range set in July by the Federal Reserve, which is 2% to 2.25%. The surge continued Tuesday, with the overnight rate hitting a high of 10% before the NY Fed stepped in.

Hmmm. Overnight rate hits 10%, and Mnuchin wants a 50 year with a rate near zero? Good thing the overnight is not factored into the yield curve.

So supply and demand says that there was demand for overnight loans, but not enough money to loan, so rates went up. Thus the Fed buys Treasuries, which are competing to borrow money, to reduce demand and help lower rates. Seems that there is too much borrowing going on, and the government borrowing is distorting markets to the breaking point.

Nothing to see here, move along.

[r3volution 3.0]

This is actually a pretty big deal, good catch @TheCount, totally missed it.

It's pretty amazing that there could be a liquidity problem in a world absolutely swimming in newly printed money.

[TheCount]

This is actually a pretty big deal, good catch @TheCount, totally missed it.

I'm not sure why it wasn't bigger news. Too complicated, maybe.

[r3volution 3.0]

I'm not sure why it wasn't bigger news. Too complicated, maybe.

Well, there's no obvious connection to either "furriners r bad" or "whites is oppress," so no network has much of an interest in discussing it.

[Brian4Liberty]

I'm not sure why it wasn't bigger news. Too complicated, maybe.

They don’t want to spook the market.

Kind like what happened when some money market funds busted the buck last time around. No need to unnecessarily scare people.

[Brian4Liberty]

I'm not sure why it wasn't bigger news. Too complicated, maybe.

They don’t want to spook the market.

Kind like what happened when some money market funds busted the buck last time around. No need to unnecessarily scare people.

[brushfire]

They don’t want to spook the market.

Kind like what happened when some money market funds busted the buck last time around. No need to unnecessarily scare people.

Yet they'll give 24x7 coverage of mass shootings, showing spooky photos of the shooter, sharing manifesto letters, and the tally of death tolls, stories of killed children - they just cant get enough of that sh!t. They could cover these events, much in the same way they do shaky finance - in order to prevent copy-cats.

[Zippyjuan]

https://www.cnn.com/2019/09/17/busin...fed/index.html

It's unclear what exactly is causing the stress in the overnight market, or how long it will last.
"No one knows why this is happening," Jim Bianco CEO of Bianco Research, said on Twitter. "If it persists more than another day or two, it will be a problem."

There are some theories.

Cabana, the Bank of America analyst, blamed the spike in overnight lending rates on the Fed badly underestimating the amount of cash needed to keep the financial system operating smoothly.

"The Fed just made a policy mistake," Cabana said. "There is not enough cash in the banking system for the banks to meet all of their liquidity and regulatory needs. I'm not that worried, because the Fed will fix it."

The catalyst for the stress, according to Cabana, was the fact that US companies withdrew vast sums of money from banks to make quarterly tax payments to the US Treasury Department. That forced banks to draw down their reserves at the Fed.

The rate spike may also be a symptom of the sharp increase in Treasury bonds being issued to fund the federal government. The federal deficit has spiked to $1 trillion this fiscal year because of the tax cuts and surge in government spending.

Banks typically buy Treasuries by borrowing in the overnight market. The jump in Treasury issuance caused a large increase in demand for short-term financing.
"The fundamental issue is there are just too many darn Treasuries out there," Cabana said. "Both parties are to blame. The $1 trillion deficit will keep this an issue."

more at link.


https://www.bloombergquint.com/onweb...most-in-months

A combination of factors are behind the latest drive higher, including the settlement of the mid-month Treasury coupon auctions that pushed more collateral into the repo market. At the same time, cash is leaving the funding space as corporations withdraw from banks and money-market funds to make their quarterly tax payment.

This is expected to push Treasury’s cash balance higher while depleting the amount of bank reserves in the system. The drop-off in reserves and fund outflows are driving up funding rates and starting to spill into the fed funds market because repo’s attractive yields can draw some lenders away from the unsecured market.

[oyarde]

https://www.cnn.com/2019/09/17/busin...fed/index.html



more at link.


https://www.bloombergquint.com/onweb...most-in-months

I'm doing my part . I made no withdrawal or any tax payment .

[r3volution 3.0]

https://www.cnn.com/2019/09/17/busin...fed/index.html



more at link.


https://www.bloombergquint.com/onweb...most-in-months

Nope

Banks aren't run by compete morons.

They know when taxes are due.

And this has nothing to do with retail clients.

Some bank(s) was/were desperate for lending.

In markets (Oh No!), rising prices mean increased demand or reduced supply.

Somebody was willing to borrow at nearly five-fold the federal funds rate.

That's frankly shocking.

Show me the last time interbank lending hit those levels Zipster.

...I expect citations.

[Zippyjuan]

Nope

Banks aren't run by compete morons.

They know when taxes are due.

And this has nothing to do with retail clients.

Some bank(s) was/were desperate for lending.

In markets (Oh No!), rising prices mean increased demand or reduced supply.

Somebody was willing to borrow at nearly five-fold the federal funds rate.

That's frankly shocking.

Show me the last time interbank lending hit those levels Zipster.

...I expect citations.

https://www.bbc.com/news/business-49746350

What was going on? Could it be a warning sign of serious stress somewhere in the financial world? The crisis a decade ago has made people more sensitive to that kind of possibility.

Mr Powell said it was due to companies needing a lot of cash for tax payments and for investors buying government bonds. Although the Fed and the markets knew these developments were coming, Mr Powell said they "had a bigger effect than most folks anticipated". He said these issues have no implications for the economy. So, flap over? Maybe. Let's hope so.

(Powell of course being the Fed Chairman) I have seen different figures as to what the rate spiked to. I saw one claim it topped out at 2.75 and I saw one claim of eight percent for a brief moment.

Today the Fed lowered the interest rate they charge on excess reserves.



https://www.reuters.com/article/us-u...-idUSKBN1W30EJ

[r3volution 3.0]

[

QED

This is not normal activity.

[Zippyjuan]

https://www.fxstreet.com/analysis/us...n-201909171725

U.S. money-market interest rates surged for a second day Tuesday as cash reserves in the banking system remained out of balance with the volume of securities on dealer balance sheets.

Amid the squeeze, the effective fed funds rate rose to 2.25%, in line with the top of the Federal Reserve’s target range of 2% to 2.25%.

The rate on overnight general collateral repurchase agreements soared by more than 600 basis points to 8.75%, based on ICAP pricing, before settling back around 7.25%. Surges are commonplace only around quarter- and month-end, so market participants had expected things might return to normal.

On Monday, the rate on overnight GC repo soared by as much as 248 basis points to 4.75%, the highest level since December, according to ICAP pricing, amid the settlement of Treasury coupon auctions and the influx of corporate quarterly tax payments, possibly aggravated by last week’s bond-market selloff, in which investors sold securities back to dealers.

[jkr]

It's
Happening?

[devil21]

Fed announced ongoing repos for the next few weeks, including some termed longer than overnight. There's multiple reasons this could be happening, or combination of them. Someone is trying to get rid of a lot of Treasuries (Chinese?) and the Fed is soaking them up fast so they don't distort the open market. High debt issuance by the Treasury is loading up the primary dealers with Treasuries to the point they're running out of cash and need to offload to the Fed asap. A few banks are having liquidity problems (DB?) and need to offload Treasuries for cash. That's just three likely possibilities.

[tn1776]

The elites don't necessarily agree with the issues they support. The reason the globalists push smoking bans, homosexuality, feminism, wars, debt, slavery reparations, tyranny, illegal immigration, abortion, global warming, vaccines, and the minimum wage is that the ruling class wants to divide and distract the 99%.


Once the ruling powers have turned the US into a Communist country, the useful idiots who supported the elites will be lined up in front of a wall and shot.

[devil21]

The elites don't necessarily agree with the issues they support. The reason the globalists push smoking bans, homosexuality, feminism, wars, debt, slavery reparations, tyranny, illegal immigration, abortion, global warming, vaccines, and the minimum wage is that the ruling class wants to divide and distract the 99%.


Once the ruling powers have turned the US into a Communist country, the useful idiots who supported the elites will be lined up in front of a wall and shot.

You know some history, at least. I'd argue that the mid-level operators, the ones who know too much but aren't in the inner circle, are the first to be eliminated by the low-level foot soldiers. The mid-levels become liabilities. Only the inner circle and the low-level foot soldiers who actually do the dirty work remain. Then comes the elimination of the "useless eaters" at the behest of the inner circle and carried out by the low-level foot soldiers.

Any way, the Fed is up to something and metals have resumed their moonshot today.

[Zippyjuan]

You know some history, at least. I'd argue that the mid-level operators, the ones who know too much but aren't in the inner circle, are the first to be eliminated by the low-level foot soldiers. The mid-levels become liabilities. Only the inner circle and the low-level foot soldiers who actually do the dirty work remain. Then comes the elimination of the "useless eaters" at the behest of the inner circle and carried out by the low-level foot soldiers.

Any way, the Fed is up to something and metals have resumed their moonshot today.

Gold is presently down $4 an ounce so far today.

[devil21]

Gold is presently down $4 an ounce so far today.

I have no idea what chart you are looking at but gold and silver both have been up today, 1% for gold and almost 5% for silver.

[Zippyjuan]

I have no idea what chart you are looking at but gold and silver both have been up today, 1% for gold and almost 5% for silver.

At the time, I was viewing Kitco. Up about $6 right (0.42%) now which isn't exactly "soaring". Gold is below where it was at the beginning of the month. If it is a "moonshot", at this rate it could take a few years.

[devil21]

Hence why I said "around". But again, you're not exactly disproving my statement that the ratio is stupid high.

[Zippyjuan]

Hence why I said "around". But again, you're not exactly disproving my statement that the ratio is stupid high.

So maybe the price of gold is too high and should come down more? It was 93 earlier this year and is now about 73.

If we use the "modern ratio" of 65 and today's $17.79 an ounce for silver, would that mean gold should be $1163 instead of $1500 an ounce?

[devil21]

So maybe the price of gold is too high and should come down more? It was 93 earlier this year and is now about 73.

Riiiiiiight that must be it. In the period of unrestrained fiat currency printing, gold is too high. lol

Eventually, in a currency reset, you will be correct, though. What goes up must come down...eventually.

[Zippyjuan]

Riiiiiiight that must be it. In the period of unrestrained fiat currency printing, gold is too high. lol

Eventually, in a currency reset, you will be correct, though. What goes up must come down...eventually.

The ratio (even if it had a real mean it is supposed to be at which it doesn't seem to) doesn't tell you if one is over-priced or one is under-priced. If the ratio is high, maybe the price of that one is too high. But I guess metals can only go up and never down. To Infinity and Beyond!

What goes up must come down...eventually

[acptulsa]

But I guess metals can only go up and never down.

Either that, or fiat currencies only ever go down, making metals look like they're always going up.

And cars. And beef. And the rent. And electricity. And postage. And...

[devil21]

Fed expanding repo operations into November.

This has got to be Treasury dumping, probably by foreign holders.

https://www.zerohedge.com/markets/ny...ore-term-repos