Markets are increasingly expecting the Bank of England to cut the Bank Rate on Thursday.
As BoAML’s economic and strategist team observes in a note on Tuesday, the BoE really has nothing to gain by waiting. As a result they’re anticipating a 40 basis point cut, with a good chance of only 25 basis points because “Carney has said he is concerned about taking rates ‘too low’”. The current Bank rate is 0.5 per cent. Read more
So. Alibaba’s Yu’e Bao and its internet Money Market Fund ilk are good, particularly if you are in favour of deposit liberalisation in China, say, in 1-2 years. As Lex said, Yu’e Bao is sneaking market-priced bank capital into a closed system.
But. Yu’e Bao and its ilk are bad, particularly if you focus on pesky things like liquidity risk. This is nuts. When’s the 危机? after all, and it’s worth remembering the risk that comes with receiving higher returns than capped bank deposits.
Meanwhile. Yu’e Bao and its ilk are a threat, particularly if you are a Chinese bank… Read more
The FT’s Tracy Alloway and Michael Mackenzie report on Thursday that banks are making contingency plans to deal with the potential impact on the $5tn “repo market” of the US government missing a payment on its debt.
Which basically means determining when we should start treating a US Treasury Bill as a potentially defaulted security. Currently, you could say, the T-bill’s status exists in a quantum state. It could be the best collateral in the world, but then again it might not be. Which one it is depends entirely on an externality, and to some degree how we choose to observe it.
This is probably welcome news given that the role played by distressed collateral and repo markets back in 2008 is still poorly understood. Read more
Well, it’s a revolution! Apparently.
This is Goldman’s first report on its money market funds to disclose daily net asset values (h/t Tracy): Read more