The past few days have seen significant fluctuations in the US financial markets, particularly in the Secured Overnight Financing Rate (SOFR) and General Collateral (GC) repo rates. This spike in SOFR rates indicates a potential strain in USD liquidity, with USD rising and VIX staying elevated. The Federal Reserve's recent decision to cut interest rates by 50 basis points may have been influenced by banks' efforts to manage their debt, as evidenced by a sharp decline in outstanding loans from the Bank Term Funding Program (BTFP). Additionally, the Federal Reserve's balance sheet has decreased by $66 billion in September, continuing its quantitative tightening measures, which have reduced the balance sheet by $1.92 trillion from its peak. The Reverse Repurchase Agreements (RRPs) at the New York Fed are also trending down and may fall below $300 billion soon.
Repo Risks Rising? Short-term, this represents USD liquidity deterioration - hence the spike higher in this indicator - with USD rising + VIX staying elevated. Last time I played a repo event it occurred as both yields & oil spiked higher. 🤔 H/t @lorek14728 for calling my… https://t.co/NkyIK1R3u3
This Q/E was a turning point. When we were at this point during the last cycle (high rates, Balance Sheet Runoff, large Treasury issuance) in 2018-2019, two funding spikes should have raised red flags - the Pres George H.W. Bush funeral day and year-end Dec 31, 2018
Bank Term Funding Program (BTFP) dropped by $15B this week to $71B. The Federal Reserve's liquidity rug pull is underway to cause another crisis. https://t.co/gmsdkPWDKV https://t.co/tupfUxALKJ