Repo Chaos - Should You Be Concerned?



Posted by Ed 3 mths ago
There are seasonal bottlenecks which litter the calendar. Why did Lehman fail two weeks before the end of the third quarter of 2008? Bear Stearns, if you remember, came to the end of its rope…two weeks before the end of that year’s first quarter. And here we are again today two weeks before another quarter-end.

US money markets are in a state of visible disarray. When repo is front page news that can’t be good. Most people including those in the financial media have no idea what a repurchase agreement even is or why there are so many of them.

And we’re still talking about yesterday before even getting to the fireworks today. As it stood on Monday, the effective federal funds (EFF) rate was 2.25%. The current policy range is 2.00% to 2.25%, meaning EFF butted right up against the top end of the range (15 bps above the joke, IOER).
Since federal funds is how the Federal Reserve communicated its monetary policy stance, this is a very serious situation.

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