The federal funds rate applies to a range of actual trades in unsecured overnight lending. What you see as the calculated “effective” rate is an average of those trades. Under the ZIRP/QE paradigm, there has been very little dispersion since there isn’t much volume in that corner of the money market. By theoretical definition, repo rates should come in under [...]
Picking up on the money market(s) discussion from this morning, bill rates once again were suggestively shallow. The 4-week T-bill was just 14 bps in “yield”, well below the Fed’s new “floor” of 25 bps; the 3-month bill was just 24 bps and behaving nothing like what would be expected. Federal funds remain well-behaved but that isn’t a major component [...]
When decrying the state of monetary policy that relies on essentially a “dead” money market, what does that actually mean? The FOMC, after all, is using the federal funds rate to “tighten”, ostensibly, even though there isn’t anybody there. They have developed other tools to go along with the federal funds rate, but all that does is highlight the central [...]
I covered a good deal of the background here, so I should only reiterate that it is a profound difference in actual mechanics this time as opposed to last. At the end of June 2004, Alan Greenspan’s Fed commanded that money market rates follow a new federal funds target (from 1.00% to 1.25%) and money rates did so. Of course, [...]
Now that the FOMC has announced its intentions, it has to sit back and wait to see if it can actually do anything. This is the direct consequence of using the federal funds rate as the primary target, as it is a dead market that nobody really uses anymore. The only reason the Fed is still leaning on federal funds [...]
The problem with exchange rates is that they don’t always tell us anything about what everyone seems to think. In fact, the more wholesale financial exhibitions in a particular currency, the less traditional interpretations conform. In many ways, this is very much like transitioning between classical physics in the Newtonian, deterministic paradigm into quantum physics’ often strange and seemingly incoherent [...]
The duality of gold in the modern wholesale fabric has perhaps been on display this year more so than at any time since 2008. That year, the year of the eurodollar-drawn panic, gold was seemingly more volatile than any other asset – if only for its virtuous tendency to as sharply rebound for every major crash. And in 2008 there [...]
Last week’s survey data around the world was a bit more mixed than anyone would have liked, an obvious statement that yet deserves the emphasis. Europe, for instance, remains mired in a fog of zombie-like “growth” that is notable for both a distinct absence of QE’s promised impact and the related Japan-like steadiness that suggests nothing good about near and [...]
With the state of the “dollar” being what it is, including the devastating darkening afforded by negative swap spreads everywhere, it isn’t exactly surprising to find that primary dealers continue to hoard UST collateral. By September, dealers were reporting a net positive balance of all coupon holdings of nearly $60 billion. With everyone in the world predicting higher interest rates, [...]
If for the Asian “dollar”, then China’s inability to place an economic bottom is a problem for every market and economy. The more hopeful mainstream rhetoric from the summer is now gone, just as the “dollar” would have it. China’s variations have far too closely matched these “dollar” waves which, in the midst of another, is not a hopeful sign [...]
Stay In Touch