Just spitballing here but foreign traders that are short their own currencies against the USD need USD's to cover their leverage.
OK, simple question. Does "shortage of USD" expressed by this thing mean dollar strengthening vs other currencies?
I was an interbank money market dealer in the 90's and 00's. This repo thing was part of my job from 1995, in various countries, over the years. - Most liquidity squeezes like this resulted in nothing. They came from poorly anticipated short term D<>S for o/n funds that sorts itself out quickly enough. - But, all the major credit crunches, events like the GFC etc, where felt in the interbank cash funding market well before those events hit the headlines. The GFC pressure in the overnight cash funding market was building before Lehmans collapsed. We saw it coming way in advance. This was very acute for the weaker bank credit names, who scrambled every day to fund their cash shortage. - No one talks about their short term cash situation, as it is the first indicator that a bank is in trouble, and reputation is everything in interbank uncollateralized cash markets. So the situation is often worse than available information reveals. You didn't even want to tell the CB if the cash market was tight, as that indicated to them that you had liquidity issues that no one else was mentioning (even though they had them as well). Trading opps? Dunno, don't really follow it anymore. But in a real crunch, with heavy CB intervention, demand for quality bonds and bills rises as banks find that no one wants to take their junk as repo collateral, so they try to sell that junk to reduce funding pressure. Remember that the credit crunch is also felt offshore, between banks that need daily USD outside the US. Often acutely. SOFRs are in play right now, trade them https://www.cmegroup.com/trading/interest-rates/stir/one-month-sofr_quotes_globex.html And other currencies can get squeezed if USD cash gets really tight, so watch EONIA futures https://www.eurexchange.com/exchang...ture?hiddenSetMaturityDate=201910&timeSpan=3M And watch 1-3 month rates. If the overnight crunch gets so tight, banks will push out their funding to relieve o/n pressure, which will drive up the 3 month curve as eveyone competes for 3mth funds. This destroys the bank's funding-gap profit for the quarter, so MM dealers don't want to do it at the risk of their bonuses just to find out that the crunch was short lived. But if not short lived, there is eventually a capitulation to 1-3 month funding... and calendar spreads steepen, say Z19 v. H20. Can even get a kink in the STIR curve, relative to the longer curve. Some people might bracket that in a number of ways. Or spread curve strips. A canary in the coalmine might be Deutsche Bank. Who would lend to them in a credit crunch given all their woes? MM dealers will know very quickly which banks are being punished when it comes to short term interbank funding. Also look at Australian banks, who in the past would rely heavily on offshore short term funding (borrowing 3 months outside Australia in AUD but mainly other currencies to fund huge AUD mortgage books.) Australia is heading into their first R in decades, and household mortgage stress is up as many borrowers switch from interest-only loans in the next few months.
I can't say if it is true, but it sounds very realistic. And Lehman would have been feeling intense heat in their short term funding rollovers well before they got to the extreme stage described there. I know others were feeling heat for an unusually prolonged length of time. Day after day, week after week, into months.... liquidity never eased, was always tight, was always expensive and hard to get and gut churning just trying to fund the bank day-to-day. Thank Fk I never took "that" job at Lehman several years earlier. You should have seen the Asian crisis in the 90s. And the Japanese bank collapse.
The recent repo anomaly appears to be a consequence of temporary conditions including corporate tax day, large treasury coupon settlement and dealer positioning. It does not reflect any fundamentals of the USD funding market. In short, nothing to see here.
What would you say would be the main red flag to watch out for that indicates that this is not just a technical and very temporary imbalance but something much more sinister? And preferably a datapoint that can be checked by us, plebs
How do you know? Because that's what they said on CNBC? Are you on a money market desk? This is a very specific and specialized slice of finance.