Everyone in the market is suddenly talking about the spike in repo fails.
But here’s the thing. Repo fails need to be seen in context.
Yes, this chart from BoAML makes the recent June spike look significant:
To those who have been watching the developments in the Fed’s fixed-rate full-allotment repo facility*, it won’t come as a bracing shock that the facility’s interest rate might eventually be synced with the interest rate paid on reserves and supplant the federal funds rate as the Fed’s new policy rate.
A short paper by Joseph Gagnon and Brian Sack arguing in favour of such a framework has been eagerly awaited and is now live (hat tip Real Time Economics). Sack’s authorship is especially notable given that he was head of the New York Fed’s markets desk until June 2012, when he was replaced by Simon Potter. 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
When it comes to understanding the Fed’s recently touted — but initially overlooked — fixed-rate, full-allotment overnight reverse repurchase agreement facility, Cardiff covered pretty much all the bases here.
That said, there was a great quote recently in a follow up piece with FT colleagues. Barclays’ Joseph Abate said the facility resembled an “all you can eat collateral buffet” due to the fact that the trade would provide a fully collateralised investment opportunity with the Fed to almost all parts of the financial market. Read more
As we noted earlier, the People’s Bank of China is continuing to inject huge sums of liquidity into the monetary system via so-called “reverse repos” (the equivalent of conventional central bank repos elsewhere). According to Chinascope, the latest round of easing supplied a record Rmb220bn to the market in exchange for collateral.
The seven-day operation was priced at 3.40 per cent (Rmb150bn) while the 14-day operation was priced at 3.60 per cent (Rmb70bn). Read more
The People’s Bank of China conducted 220 billion yuan ($34.6 billion) of reverse-repurchase operations, the most in a single day, according to a trader at a primary dealer required to bid at the auctions. The government may introduce new policies to boost consumers’ borrowing and spending this year, the Economic Information Daily reported today, citing an unidentified person. Read more
ChinaScope reports that China’s total outstanding foreign debt was $751.26bn at the end of March 2012, according to data released Monday by the State Administration of Foreign Exchange (SAFE).
Here’s the trend to date, also courtesy of ChinaScope: Read more
Anyone catch this from the New York Fed on Friday? It’s hugely important:
Beginning Monday, August 15, the New York Fed intends to conduct another series of small-scale reverse repurchase (repo) transactions using all eligible collateral types. The first operation will be conducted using only the expanded reverse repo counterparties announced on July 27, 2011. Subsequent operations in this series will be open to all eligible reverse repo counterparties. Read more