Tag Archives: ioer

It’s never just one thing or another. Take, for example, collateral scarcity. By itself, it’s already a problem but it may not be enough to bring the whole system to reverse. A good illustration would be 2017. Throughout that whole year, T-bill rates (4-week, in particular) kept indicating this very shortfall, especially the repeated instances when equivalent bill yields would go below the RRP “floor” and often stay there for prolonged periods. There was, as I wrote...

The Federal Reserve didn’t just raise the range for its federal funds target by 25 bps, upper and lower bounds, it also added the same to its twin policy tools which the “central bank” says are crucial to maintaining order in money markets thereby keeping federal funds inside the band where it is supposed to be. The FOMC voted to increase IOER from 15 bps to 40 bps, and the RRP from 5 bps to 30 bps. That RRP, or reverse repo program, is meant to be something of a...

A momentous day, for sure, but one lost in what would turn out to be a seemingly endless sea of them. October 8, 2008, right in the thick of the world’s first global financial crisis (how could it have been global, surely not subprime mortgages?) the Federal Reserve took center stage; or tried to. Having bungled Lehman, botched AIG, and then surrendered to Treasury which then screwed up TARP, the world’s entire financial edifice was burning down while US...

Despite the name, the Fed doesn’t actually intervene in the US$ repo market. I know they called them overnight repo operations, but that’s only because they mimic repo transactions not because the central bank is conducting them in that specific place. What really happened was FRBNY allotting bank reserves (in exchange for UST, MBS, and agency collateral) only to the 24 primary dealers. These were repos only between those entities and the Federal Reserve. It had...

There’s been an unusual level of honesty coming out of Liberty Street of late. Not total honesty but certainly more than the usual nothing denials and dismissals. If you don’t immediately recognize the reference, that’s the street in NYC where FRBNY and its Open Market Desk resides. What is supposed to be the moneyed centered of the universe. After all, as Ben Bernanke famously threatened in November 2002, that’s the printing press. Or is it? In my own conversations...

Finally, finally the global bond market stopped going in a straight line. I write often how nothing ever does, but for almost three-quarters of a year the guts of the financial system seemed highly motivated to prove me wrong. Yields plummeted and eurodollar futures prices soared. It is only over the past few weeks that rates have backed up in what has been the first real selloff since last year. Is this a meaningful change?   It may seem that way in certain places....

Unable to tackle effective monetary requirements, bank regulators around the world turned to “macroprudential” approaches in the wake of the Global Financial Crisis. It was mostly public relations, a way to assure the public that 2008 would never be repeated. A whole set of new rules was instituted which everyone was told would reign in the worst abuses. Among the more prominent of these was Basel 3’s leverage ratio....

On August 12, 1985, Japan Airways flight 123 left Tokyo’s Haneda Airport on its way to a scheduled arrival in Osaka. Twelve minutes into the flight, the aircraft, a Boeing 747, suffered catastrophic failure when an aft pressure bulkhead burst. The airplane had been improperly repaired from a tailstrike (the tail of the aircraft actually hitting the runway pavement) seven years earlier, and therefore wasn’t sufficiently...

June 13 sticks out for both eurodollar futures as well as IOER. On the surface, there should be no bearing on the former from the latter. They are technically unrelated; IOER being a current rate applied as an intended money alternative. Eurodollar futures are, as the term implies, about where all those money rates might fall in the future. Still, the eurodollar curve inverted conspicuously starting June 13. That was...

The FOMC is widely expected to vote in favor of reducing the system’s balance sheet this week. The possibility has been called historic and momentous, though it may be for reasons that aren’t very kind to these central bankers. Having started to swell almost ten years ago, it’s a big deal only in that after so much time here they still are having these kinds of discussions. My own view on the topic is the same as...