“Repo Market BREAKS As Dealers Run Out Of Securities To Use For Fed Funds”

“Two weeks ago, just after the Fed first announced its massive overnight and term repo operation expansion which now amounts to some $1 trillion in daily repo capacity (and before Powell expanded this bazooka to included ZIRP and unlimited QE), we said that this is a big mistake as the Fed was targeting the wrong liquidity conduit.

Then, after the Fed launched QE across the entire curve and expanded it to include MBS, the Fed’s monetary police became outright bizarre: on one hand the Fed was offering to buy Treasurys and MBS held by Dealers (at a hefty, unknown premium to market), on the other it was offering Dealers to park those securities at the Fed either overnight or on a term basis in exchange for cash while incurring modest capital charges.

After all, why would anyone pick repo over QE in the current market was a total mystery.

Why indeed, and as we expected, after several repo operations that saw zero Treasury submissions in the Fed’s overnight and term repo operations at the start of this week…

… we finally got a failing repo operation, when this morning the Fed saw no bids (i.e., submissions) in either Treasurys, MBS and Agency securities in its $500BN 3-month repo operation!…

Today’s other repo operation, the $500BN overnight repo saw just $1.5BN in TSYs submitted (the remaining $5.25BN were MBS) into the $500BN operation.

For those who haven’t been following the Fed’s repo operations, this was the first time since the bank restarted its repo operations that it received no bids on its term offerings. But it’s not just term: as the charts below show, ever since the Fed announced unlimited QE concurrently with massive repos, the amount of securities submitted into repos has collapsed and for Treasurys has been $0 on most of this week’s operations…”

https://gsiexchange.com/repo-market-breaks-as-dealers-run-out-of-securities-to-use-for-fed-funds/

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