Wow, fascinating that I read this news on a forum because not a word was mentioned of it on cnbc . Not one breaking news headline all day online which is where I usually go to read financial news. They did mention a netflix Seinfeld deal and how great the new iphone 11 is going to be but nothing about the fed handing out $53 billion bucks to save the markets again!!!
“The temporary shortage of cash was due to quarterly corporate tax payments and the settlement of $78 billion in supply of Treasuries sold last week, analysts said.” “The root cause is the shortage of reserves,” said Gennadiy Goldberg, senior interest rates strategist at TD Securities in New York. “This is a funding squeeze.” By early Tuesday, there were no signs cash had returned to money markets. “This increased the pressure on the Fed to doing something,” Goldberg said. The Fed embarked on a move it last deployed on a large-scale since 2008 during the height of the global credit crisis. Repo rates dropped to zero after the Fed announcement before ending the day at about 2.0%, analysts said. https://www.reuters.com/article/us-...ld-play-to-soothe-money-markets-idUSKBN1W22LZ
Negative rates around the world and now the Fed doing its first emergency overnight repo action since 2008. Perhaps there will be a violent dislocation very soon? The catalyst to the next GFC?
A lot of information is being left out here. 1. I am sure there is more detailed info on where the shortages are coming from 2. Federal Reserve Loans are usually just overnight. Basics Total Reserves - Required Reserves = Excess Reserves. Usually Banks trade between themselves overnight in the Federal Funds Market. With banks with Excess Reserves lending to banks with Deficient Reserves. Apparently, tax payments and the rapid run up in the 10 year yield on US Treasuries (rate up Bond Price down) causes Excess Reserves of the system to go negative. US Treasuries are considered a form of bank reserves and with rates up the value of this asset goes down. Federal Reserve needed to inject overnight Reserves to maintain the integrity of the system (accounting trick). Worry Not.
You would think this would be perceived as a bigger deal. I remember (only with perspective) how certain investment banks had trouble funding in the commercial paper market in 2007.
It's long overdue ...but of course there isn't a worry in the world as everything is peaches and cream and pretty rainbows and sunny skies forever....
I suspect the difference is in this case vs 2007 is that the current deficit is spread over a large number of banks. It is not as if only 1 or 2 banks are on the hook for the entire $53 billion.