The November update for TIC figures shows relatively few surprises given what was witnessed November into December then January. The heavy downdraft of October was somewhat reversed, and even the official sector was probably less strained (outside of China) than at any time in 2015. But these are reactive symptoms to the greater problem of “dollar” availability, so the most [...]
Behind our new paywall, I have been documenting the behavior of “dollar” money markets as they relate to China and elsewhere (global, general liquidity) but recent data in repo demand a more open airing. There are numerous indications that US$ markets are a total mess, none more so than repo. That starts with GC repo rates that remain above the [...]
Before World War II, in Japan there were four large conglomerates situated as vertically-integrated family-centered monopolies. Called zaibatsu, they were Mitsui, Mitsubishi, Sumitomo, and Yasuda, and many other smaller rivals. Each group would not just own companies in all industries, they would also organize and contain an assimilated banking concern (horizontal integration) to carry out capital and funding needs for within [...]
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 [...]
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 [...]
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, [...]
Every other central bank in the world has at some point shifted their monetary policy framework to the world of secured short-term funding rather than unsecured. That shows the primacy of repo as opposed to what has been used almost exclusively in the US (and related eurodollars). The Federal Reserve has discussed letting go of the federal funds target before, [...]
The main problem with looking at the financial world from a “dollar” funding perspective is that there really is no such monolithic existence. The funding conditions in Russia may be very different than those of Swiss banks; they also may be far too similar. Given the impossibility of direct observation, being left outside and searching for interior clues that bubble [...]
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