dChan
Anonymous ID: 5c9d69 Jan. 14, 2020, 7:14 a.m. No.7810001   🗄️.is 🔗kun

Fed Injects $82BN In Liquidity As Term Repo Is Most Oversubscribed In One Month

 

It was supposed to be a one-time, year-end "liquidity event." Instead, it has transformed into the latest liquidity addiction within the financial community.

 

Just days after we reported that yet another disturbance appears to be brewing below the calm surface of the repo market again, we got another indication just how strong the market's addition to the Fed's easy repo money has become, when moments ago the Fed announced that its latest 2-week term repo operation was also the most oversubscribed since December 16, as $34.3BN in securities ($27.65BN in TSYs, $15.5BN in MBS) were submitted for today's $35 billion operation, as dealers continue to scramble to the Fed for liquidity which they are no longer using for "regulatory" year-end purposes (since it is no longer year-end obviously), but are instead using it to pump markets directly. Today's operation, which was the most oversubscribed in 2020, also saw the most submissions since Dec 16, and suggests that as repos are now maturing at a rapid burst. And just in case there was any doubt that the liquidity shortage isn't getting better, moments later the Fed announced that in its daily Overnight repo operation, it also accepted $47BN in securities ($22.5BN TSYs, $24.5BN in MBS) for a total liquidity injection of $82 billion. Predictably, as the market's repo addiction is now clear for everyone, in the wake of today's term repo operations, traders were eagerly waiting for the release of the new repo schedule to see if there are any changes in the size of the offerings… but don't hold your breath.the market had gotten addicted to the easy Fed liquidity unleashed in September (via temporary repo ops), and then again in October (via permanent T-Bill purchases): "it's easy to see how the Repo market can get addicted to easy cash from the Fed when the stop-out rates for the RP operations are 1.55% - behind the offered side of the market." But, as the repo strategist added, as the Fed keeps injecting cash, the market gets used to it.

 

The problem is that stopping RP ops could spark another repo market crisis, especially with $259BN in liquidity pumped currently - more than at year end - via Repo. It also means that the Fed is now unilaterally blowing a market bubble with its repo and "NOT QE" injections, and yet the longer it does so the more impossible it becomes for the Fed to extricate itself from the liquidity pathway without causing a crash.

 

Or stated simply, the longer the Fed avoids pulling the repo liquidity band-aid, the bigger the market fall when (if) it finally does. The question then becomes whether Powell can keep pushing on the repo string until the November election, because a market crash in the months preceding it, especially since it will be of the Fed's own doing, will result in a very angry president.

https://www.zerohedge.com/markets/fed-injects-82bn-liquidity-term-repo-most-oversubscribed-one-month

 

and if you have to ask how and why the big banks report massive gains on fixed income trading…look no further then here. JP Morgan is the habitual offender here.