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’Central counterparties are too big to fail
Dressing up a pig as a princess, doesn’t make the pig a princess, and concentrating all the counterparty risk in the financial system into one place, doesn’t make it vanish. It’s still there. For the most part.
Bunds get Junckered, and other repo dysfunctions
Just when you thought it couldn’t get any worse… Jean-Claude Juncker, Luxembourg Prime Minister and president of the EuroGroup speaks:
Nov. 16 (Bloomberg) — Germany’s debt level is a “cause for concern,” Luxemburg Prime Minister Jean-Claude Juncker told the General-Anzeiger newspaper.
Why cutting IOER could be suicidal
By Jove! Someone’s finally got it.
Cutting interest on excess reserve is a hugely risky option for the Fed, and could do more damage than good (leading even to major systemic issues). We’ve said as much,
A mystery central bank in USTs?
FT Alphaville has already noted the extreme specialness of the current benchmark US Treasury 10-bond.
On Friday, however, that specialness reached new levels of extremity, with Bloomberg reporting repo rates of as low as minus 2.92 per cent.
A REIT repo exposure
With the US debt ceiling debacle still in full play, anyone scouting for stress signals is very much tuned into developments in the US repo market.
Overnight general collateral rates are on the rise,
Contingency planning in six charts
Morgan Stanley’s US interest rate strategists have included a lovely set of charts in their latest research note that portray the moves in short-term markets due to the debt ceiling impasse. The strategists stress that the price moves don’t reflect liquidity shortages but are “the functional equivalent of a tightening,
Preparing for a US debt disaster
A deal required before an Asian markets drop on Monday. Bankers summoned to a joint meeting with officials in New York. Congress paralysed. Despite our continuing optimism and markets’ relative insouciance,
A year in financial instability
It may have escaped your attention but on Tuesday afternoon the Financial Stability Oversight Council (FSOC) published its first annual report into the state of the US financial system. Click below for 160 pages of pdf fun:
Further further reading
For the commute home, where budget decisions are made for rather than by children,
- Corn goes pop! Reaches a 33-month high.
- “Expendability”: what the Saudi king has learned from Libya.
- Greg Ip on Paul Ryan’s budget proposal.
Spanish bonds sin liquidez
The ascent of Spanish bond yields continued on Friday (via Bloomberg):
And according to some analysts, much of the price deterioration was connected directly to Spanish bond illiquidity.
Stefano Di Domizio of Lombard Street Research,
An intriguing pick-up in Treasury settlement fails
Some curious developments in the US Treasury market to report.
First, there’s been a relatively strong burst of settlement failures in the US Treasury repo market in the last week.
According to data compiled the New York Fed,
Oops, MBS settlements failing again
Oh dear.
After reversing their upward trajectory of late, MBS trade settlement fails in the US primary dealer repo market picked up rather forcefully last week.
This, for example, is how the latest primary dealer data survey from the New York Fed showed fails to deliver and receive coming in respectively:
Repo is still puzzlingly inverted
Barclays Capital’s latest collateral update continues to puzzle over why overnight general collateral (GC) is trading cheap to the overnight indexed swaps (OIS) — a.k.a. the effective Fed funds rate in the US.
Euribor has been vaporised
Not our words, but those of Richard Comotto of the European Repo Council.
In case readers are not familiar with Mr Comotto, he’s the author of the ICMA’s semi-annual survey of the European repo market — probably the best (if not the only) overview of the repurchase market in Europe.
Frozen in the Greek repo markets
The European Repo Council put out an interesting paper earlier this month on developments in the repurchase and securities lending markets, post the Lehman and European sovereign crises. It’s available here.
Finreg, the FDIC and repo markets: a BarCap primer
BarCap produced another solid batch of commentary on the potential implications of US financial reform on Friday*, this time on the topic of repo and short-rate markets.
[For any interested, previous missives covered derivatives/central clearing and the resolution authority]
Here’s the I-want-to-leave-the-office version:
Beware, repo rates are on the rise
It’s been less than a month since the Federal Reserve resumed its Supplementary Financing Programme in a bid to begin draining liquidity, but the effects are already creeping into the rate market.
Note the rise in overnight dollar-Libor rate here:
Repo dealers fear impact of new rules
Wall Street dealers are concerned that proposed new rules by Congress could have unintended consequences on a key area of financing for banks and top financial institutions. Under a proposal passed by the House Financial Services Committee last week,
The insecurity of the unsecured creditor
How do you solve the problem of excessive risk-taking and systemic risk?
FDIC chairman Sheila Bair had an idea back in October:
ISTANBUL (Reuters) – Ensuring secured creditors face losses when a financial institution fails could help rein in excessive risk-taking and strengthen the financial system,
Repo-ssessed: Lehman RMBS goes on sale
A European central bank is reportedly looking to take advantage of the recent bond market rally to offload something pretty special: Lehman-originated RMBS.
From Bloomberg:
The central bank of Europe’s largest economy [Germany's Bundesbank] hired Morgan Stanley and structured finance advisory firm AgFe Ltd.
Double secret QE
The Bank of England has just decided to extend its programme of quantitative easing by £50bn.
It’s also widened the range of gilts it is buying back from the market to include bonds beyond 20 years in maturity — something it had previously avoided given their general illiquidity — and has made a rather interesting and related agreement with the UK’s Debt Management Office.
Treasuries out of line with interest rate expectations
The curious case of rising Treasury bond yields continues to attract various theories and explanations in the market. The latest doing the rounds is that it may have nothing to do with rising interest rate expectations at all.
Living with negative repo rates
The market has been getting used to negative repo rates ever since the Fed introduced fines for failed US Treasury deliveries on May 1st. However, negative rates of 3 per cent are perhaps a little more than the market may have been prepared for.
Negative interest in cash, or goodbye banknotes
[Cash] is a redundant, indeed dominated medium of exchange and means of payment for legitimate transactions.
Or at least so says Willem Buiter, former BoE MPC member, and Maverick economist blogger in one of his recent negative-interest rate postings.