Trillions: The Fed’s Collateral Shortage is About to Explode

Sharing is Caring!

Two weeks ago, in the aftermath of the Fed’s surprise hawkish FOMC announcement which also hiked the administered rates on the Fed’s overnight repo and IOER facilities by 5bps to 0.05% and 0.15% respectively, we quoted Credit Suisse repo guru Zoltan Pozsar who explained it best in his post-mortem, writing that “the re-priced RRP facility will become a problem for the banking system fast: the banking system is going from being asset constrained (deposits flooding in, but nowhere to lend them but to the Fed), to being liability constrained (deposits slipping away and nowhere to replace them but in the money market).”

See also  Tucker Carlson Warns Americans About ‘Crime Of The Century’

What he means by that is that whereas previously the RRP rate of 0.00% did not reward allocation of inert, excess reserves but merely provided a place to park them, now that the Fed is providing a generous yield pick up compared to rates offered by trillions in Bills, we are about to see a sea-change in the overnight, money-market, as trillions in capital reallocate away from traditional investments and into the the Fed’s RRP.

See also  It is Time to End the Nonsense About the Vaccines

www.zerohedge.com/markets/zoltan-sees-reverse-repo-hitting-2-trillion-weeks-what-happens-then

488 views

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.