Spike in money market rates spurs Fed to take action – Wells Fargo


Today there was a spike in money market rates (repo) not seen in a decade. The Federal Reserve did the first significant repurchase operation since 2008. According to analysts at Wells Fargo, the need for today’s operation will spur additional discussion on the need for a standing repurchase facility at the Fed.

Key Quotes: 

“US money markets have been on a wild ride this week. We have been deluged with questions, and overnight Treasury general collateral (GC) repo at one point traded near 9% this morning. The Secured Overnight Financing Rate (SOFR), which is based off of Treasury repo rates, has followed suit, climbing 23 bps on Monday. This jump in secured overnight borrowing rates has put upward pressure on unsecured markets: the effective fed funds rate set at 2.25% yesterday, an 11 bps move from Friday and at the upper bound of the Fed’s 2.00%-2.25% target range. What is going on here? In our view, the lead driver relates to corporate tax payments.”

“The Sep. 15 corporate tax deadline is likely one of the key drivers of the move in money market rates this morning. The payment of corporate taxes contributed to the drain of reserves from the system of likely somewhere around $100 billion.”

“On the other hand, mid-month settlements of Treasury coupon auctions brought $54 billion in net supply to the market yesterday. This is a particularly large day of settlements, but is indicative of a broader trend of a growing supply of Treasuries (used as collateral for repurchase agreements) in the market with a falling supply of cash in the form of bank reserves.”

We expect we could see similar pressures come month-end, perhaps not quite to the degree of the move witnessed this morning. Net T-bill issuance is expected to drop off from the rapid pace of weekly issuance over the past six weeks. However, settlements of coupon notes and bonds on Sep. 30 will be a similar $50 billion.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Feed news

Latest Forex News

Editors’ Picks

EUR/USD at daily lows, dragged by Sterling

Turmoil around Brexit and the absence of any other relevant catalyst weighs on the common currency, EUR/USD battling with 1.1120.

EUR/USD News

GBP/USD loses 1.2900 as Parliament says “NO”

The UK Parliament has rejected PM Johnson’s time table, lifting odds of an upcoming election in the kingdom. Volatile trading ahead of more clarity as the drama continues.

GBP/USD News

USD/JPY holds steady above mid-108.00s

The USD/JPY pair failed to capitalize on the early uptick to multi-day tops and is currently placed at the lower end of its daily trading range, just above mid-108.00s.

USD/JPY News

Gold erases daily gains, eyes $1480

Gold failed to hold to gains and pulled back, approaching again the $1480 area. Earlier today the ounce rose to $1488 and as of writing trades at $1483, flat for the day but now with a bearish intraday bias.

Gold News

Top 3 price prediction BTC, ETH, XRP: CFTC takes a surprisingly bold step to move cryptos forward

The CFTC is open to Ethereum futures without anyone picking-up the ball. XRP is currently the only bullish option currently in the Top Three. Current volatility levels have last been seen in May.

Read more

Forex MAJORS

Cryptocurrencies

Signatures