Cracks emerging in money markets?

[ochotona]

Doug Noland weekly commentary:

"With the collapse of Lehman setting off the “worst financial crisis since the Great Depression”, instability in the multi-trillion repurchase agreement marketplace generates intense interest. This crucial market for funding levered securities holdings is critical to the financial system’s “plumbing.” It is a market in perceived “money” – highly liquid and virtually risk free-instruments. If risk suddenly becomes an issue for this shadowy network, the cost and availability of Credit for highly leveraged players is suddenly in question. And any de-risking/deleveraging at the nucleus of the global financial system would pose a clear and present danger of sparking “risk off” throughout Credit markets and financial markets more generally."

[pugchief]

Even Fidelity's "treasury MM fund" sweep account FZFXX is mostly repos

fzfxx.png (58.75 KiB) Viewed 8173 times

If you really want safety, you need to manually move the money to FDLXX "treasury ONLY MM fund"

fdlxx.png (55.98 KiB) Viewed 8173 times

Who knew?

[sophie]

77% repos? That's gone up since I last checked (was about 60%). Crazy.

I only wish FDLXX could be used as a sweep account. It's not that hard to keep shifting cash into it though. With the smartphone app I can do it while walking to work, or while stuck in boring meetings. I also have 3 sets of T bills on autoroll, and it looks like you can add to those positions anytime with the "buy" button. Pugchief have you tried that?

[pugchief]

77% repos? That's gone up since I last checked (was about 60%). Crazy.

I only wish FDLXX could be used as a sweep account. It's not that hard to keep shifting cash into it though. With the smartphone app I can do it while walking to work, or while stuck in boring meetings. I also have 3 sets of T bills on autoroll, and it looks like you can add to those positions anytime with the "buy" button. Pugchief have you tried that?

Tried T-bills/autoroll? Yes, but I prefer the liquidity of a MM fund.

I didn't know about this whole repo thing until this thread, but I have held cash in other MM funds at Fidelity, and they do automatically pull funds if necessary to cover debits that can't be paid from the sweep fund, so I will be keeping most of my cash there in FDLXX going forward.

[mathjak107]

i use fzfxx as a sweep account

[sophie]

77% repos? That's gone up since I last checked (was about 60%). Crazy.

I only wish FDLXX could be used as a sweep account. It's not that hard to keep shifting cash into it though. With the smartphone app I can do it while walking to work, or while stuck in boring meetings. I also have 3 sets of T bills on autoroll, and it looks like you can add to those positions anytime with the "buy" button. Pugchief have you tried that?

Tried T-bills/autoroll? Yes, but I prefer the liquidity of a MM fund.

I didn't know about this whole repo thing until this thread, but I have held cash in other MM funds at Fidelity, and they do automatically pull funds if necessary to cover debits that can't be paid from the sweep fund, so I will be keeping most of my cash there in FDLXX going forward.

That's what I do now, except I have the FDLXX fund in a separate brokerage account and use the cash account only for ATM withdrawals. I put all the credit card auto-debits on the brokerage after an episode this past April where Fidelity's auto-transfer software failed, and a bunch of people got stuck with late fees from their credit cards. I went with the separate brokerage because you can't set up auto transfers into a money market fund in the cash account, and its sweep pays essentially no interest.

[pugchief]

i use fzfxx as a sweep account

And are you concerned that it is 77% repos?

[mathjak107]

Nope..not concerned at all..repurchase agreements are standard fed action whether a fund takes part or not

[jhogue]

Nope..not concerned at all..repurchase agreements are standard fed action whether a fund takes part or not

I think a lot of investors would have described buying and selling in the large secondary market in collaterized mortgage obligations-- the sort held by Bear Stearns prior to 2008 -- as a standard action for all the TBTF investment banks on Wall Street.

[Tortoise]

Exactly. All the articles I've read state that the Fed's current intervention in the repo market is not typical and hasn't happened since 2008. That seems like cause for at least a little bit of concern and scrutiny.

[Kbg]

https://www.pragcap.com/three-things-i- ... o-madness/

Good article.

PS: if you have a brokerage that you can see futures quotes with and monitor stocks, T-bonds, currencies, gold and large industrial commodities it’s pretty easy to see if something is up. I haven’t seen anything to suggest a problem.

[Tortoise]

I still don’t quite understand. Has the Fed been injecting billions of dollars into the repo market each day (e.g., giving it to the banks like “free money”), or has it simply been lending that money to the banks at below-market interest rates?

If the repo lending rates spiked this past week because the banks lack sufficient reserves, then doesn’t that mean the reserve requirements are doing their job, i.e., maybe the banks should dial back their lending a bit to correspond to the reserves they actually have?

[Kbg]

Its way complex...but the bottom line is it isn’t the liquidity being injected but the spread that matters. Wide spread basically means trust is breaking down.

[boglerdude]

https://fred.stlouisfed.org/graph/?g=mc6A

Looks like a lot of e-cash sitting around compared to before 08. Thats still not enough liquidity?

[shekels]

https://fred.stlouisfed.org/graph/?g=mc6A

Looks like a lot of e-cash sitting around compared to before 08. Thats still not enough liquidity?

Exactly Kbg
"Wide spread basically means trust is breaking down."


"The increased role of non-bank institutions in providing credit means that an increasing proportion of international finance comes from unregulated sources. Effectively, this means that these institutions, including money market funds, investments banks, etc., have unwittingly assumed even bigger risks in their lending practices than commercial banks. This also means that when the downturn comes, the share of non-performing and/or defaulted loans will grow higher than before."

I can hear them asking ..What's in your Wallet I mean Portfolio/Collateral?

[jhogue]

Its way complex...but the bottom line is it isn’t the liquidity being injected but the spread that matters. Wide spread basically means trust is breaking down.

+1

For even more detail and analysis, see "Securitized Banking and the Run on the Repo," by Gary Borton and Andrew Metrick, a National Bureau of Economic Research working paper available on-line:
https://www.nber.org/papers/w15223

For me, the bottom line is that Uncle Harry's wisdom still prevails. Own each asset in the purest form possible, with the fewest pieces of paper between you and your money. Avoid the repo market. Buy Treasurys.

[ochotona]

The Fed said they will inject liquidity until October 10-ish. So what happens after then???

[Kbg]

Fuhget about it, it don’t mean nuthin.

[dualstow]

I hope Pug won’t mind if I add a WSJ link. Actually, the link in the OP is from the WSJ.

Fed Adds $63.5 Billion to Financial System in Repo Transaction
https://www.wsj.com/articles/fed-adds-6 ... 1569846438

[pugchief]

I hope Pug won’t mind if I add a WSJ link. Actually, the link in the OP is from the WSJ.

Fed Adds $63.5 Billion to Financial System in Repo Transaction
https://www.wsj.com/articles/fed-adds-6 ... 1569846438

Why would I mind?

[dualstow]

I hope Pug won’t mind if I add a WSJ link. Actually, the link in the OP is from the WSJ.

Fed Adds $63.5 Billion to Financial System in Repo Transaction
https://www.wsj.com/articles/fed-adds-6 ... 1569846438

Why would I mind?

I thought you always asked for a non-paywalled alternative. I’m probably thinking of someone else, then.

[pugchief]

I hope Pug won’t mind if I add a WSJ link. Actually, the link in the OP is from the WSJ.

Fed Adds $63.5 Billion to Financial System in Repo Transaction
https://www.wsj.com/articles/fed-adds-6 ... 1569846438

Why would I mind?

I thought you always asked for a non-paywalled alternative. I’m probably thinking of someone else, then.

Maybe I did. Always better for the masses. But I have a subscription now, which I probably didn't back then.

[shekels]

When is QE not QE?
The new-new-new plan.


https://wolfstreet.com/2019/10/11/10-ye ... ury-bills/

[ochotona]

When is QE not QE?
The new-new-new plan.

https://wolfstreet.com/2019/10/11/10-ye ... ury-bills/

Through Q2 2020. I wonder if they can really stop at that point.

[Tortoise]

Sounds like a de facto standing repo facility, which the Fed proposed earlier this year.

If so, maybe at some point they'll just "make it official" and replace their current ad hoc repo market interventions with a standing repo facility.