The market vogue is to obsess about how the Fed is suppressing long-term rates.
But for years now, FT Alphaville has been trying to explain why, in reality, Fed intervention is as much focused on propping up short-term rates (preventing them from falling through zero) as it is about keeping longer-term rate expectations anchored. Read more
An update from Credit Suisse on the testing of the Fed’s proposed fixed-rate full-allotment reverse repo facility:
The reverse repo facility “testing” that began at the end of September has seen the maximum allotment go from $500 million to $1 billion, and the rate has gone from 1bp to 5bp, with the last three increases coming in almost weekly intervals. So far, the biggest test came at quarter end, when there were 87 participants with a total operation size of $58.2bn. At this rate, the Fed seems serious about gearing up for a true large scale test in at the end of the year, by which point they could have further raised the rate and boosted the maximum allotment size. Read more
Or, more descriptively FARPs vs yields (chart via Barclays):
As we noted in our previous post, the real significance of the Fed’s FRFARRP trial (or FARPs for short) may be that it takes us ever closer to the Widow’s Cruse economy envisaged by economist John Maynard Keynes.
Some might say that ‘QE unlimited’ was already the first step towards this world of inexhaustible monetary supply — for it created a central bank which was prepared to provide liquidity on demand for as long as unemployment remained too low. Read more
The Fed’s first trial of its Fixed Rate Full-Allotment Reverse Repo (FRFARRP — what we’re calling FARPs for short) facility has been completed and it looks like the New York Fed accepted $11.81bn in cash as part of the operation: Read more
… was convincing the world there wasn’t a taper.
The Fed’s Fixed Rate Full-Allotment Reverse Repo (FRFARRP) facility kicked off in trial mode on Monday, and as pointed out by Manmohan Singh on FT Alphaville earlier on Monday, the facility may prove just as significant — if not more significant — than the Fed’s non-taper move last Thursday.
This is because, when you get to the nitty-gritty of it, the initiation of what we’d like to call ‘FARPs‘ is the polar opposite of QE. Read more