After the overdone debt ceiling/gov’t shutdown passed, gold was “released” from its interbank strangle and forward rates returned negative out to 3 months. The shortage was again prominent and gold prices began to adjust accordingly. They didn't get very far. Since November 1, right around the time dollar conditions began to tighten noticeably again, forward rates have been rising in [...]
If the Financial Times report is to be believed, and there is no indication contrary, then FRBNY took warnings earlier this year to heart and began investigating. FT links a February speech by Fed Governor Jeremy Stein about “overheating credit markets” to what looks like an ongoing probe of bank exposure to mortgage REITs. “The worry is that MReits could [...]
The third and latest gold/collateral episode appears to have been related to the debt ceiling, and so it would make sense that gold prices would now be able to shake off the collateral side and resume on a physical shortage basis. Forward rates were most negative on August 22. The sudden move upward in GOFO began on August 27 (as [...]
It is exceedingly easy to follow everyone else and assume that gold prices are reacting to some ephemeral change in convoluted perceptions of attitudes for expectations toward a monetary stance, but since the beginning of the year gold has been captured as a means to foster interbank liquidity. Gold prices rise when the physical shortage asserts itself, because it is [...]
Now that the drama in DC is reaching a semi-crescendo, everybody wants to pay attention to the t-bill marketplace. The rapid ascent in shorter-duration bills is certainly abnormal but not at all unprecedented. Bill rates traded much the same in the 2011 version of the debt drama. Money market funds, now ultra-sensitive to any potential “losses”, are likely the primary [...]
So much of bank reporting, accounting, and regulation are directed toward quantifying risks on an individual and systemic basis. This introspection can be very comforting from certain perspectives, particularly since so much of it is wrapped in careful consideration. In the figures on derivatives exposures in the banking system, the Office of the Comptroller of the Currency (OCC) actually does [...]
Interest rate swaps have become ubiquitous in almost every corner of credit markets. In their purest form, they serve to hedge borrower costs against rising interest rates. An obligor often seeks to reduce debt service by issuing debt at the lowest possible rate, and that usually means (like banks) some form of short-term, floating rate security. Given the fixed nature [...]
The headline of the article Joe Calhoun sent me this morning doesn’t quite square with the content that follows. It screams that, “BIS Debunks Claims of Collateral Shortage”. As is often the case, the editor responsible for the headline may have been engaging in intentional hyperbole that would not necessarily be agreeable to the BIS authors highlighted within the piece, [...]
The sudden upturn in GOFO led me to believe that there were changes in the gold dynamics from the relatively favorable period through mid-August. Given the repo action around the UST auctions this week and last, there can be little doubt the collateral shortage has been renewed. Starting August 27, several tenors of UST bonds went special in repo markets, [...]
We have finally seen positive forward rates in the gold markets, though it is too early to make any firm interpretations about the direction of gold prices. We can note that on August 27, forward rates began moving in the positive direction while gold prices hit their most recent high on August 28. It is suggestive of a short-term drop [...]
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