Category Archives: Bonds

Global Debt & Liquidity Crisis Update: Repo Locking Up Again As Overnight Fed Operation Oversubscribed, Repo Rate Jumps

‘The Fed is an outpost of a foreign power that controls our economy, most of our politics and our financial future. It’s an instrument of the Rothschild global cabal. It always has been since 1913’

First it was supposed to be just a mid-month tax payment issue coupled with an accelerated cash rebuild by the US Treasury. Then, it was supposed to be just quarter-end pressure. Then, once the Fed rolled out QE4 while keeping both its overnight and term repo operations, the mid-September repo rate fireworks which sent the overnight G/C repo rate as high as 10% was supposed to go away for good as Powell admitted the level of reserves was too low and the Fed launched a $60BN/month Bill POMO to boost the Fed’s balance sheet.

Bottom line: the ongoing repo market pressure – which indicated that one or more banks were severely liquidity constrained – was supposed to be a non-event.

Alas, as of this morning when the Fed’s latest repo operation was once again oversubscribed, it appears that the repo turmoil is not only not going away, but is in fact (to paraphrase Joe Biden) getting worse, because even with both term and overnight repos in play and with the market now expecting the Fed to start injecting copious liquidity tomorrow with the first Bill POMO, banks are still cash starved.

To wit: in its latest overnight operation, the Fed indicated that $80.35BN in collateral ($74.7BN in TSYs, $5.65BN in MBS) had been submitted into an operation that maxed out at $75BN, with a weighted average rate on both TSY and MBS rising to 1.823% and 1.828% respectively.

While it was clear that the repo market was tightening in the past week, with each incremental overnight repo operation rising, today was the first oversubscribed repo operation since September 25, and follows yesterday’s $67.6BN repo and $20.1BN term repo.

But the clearest sign that the repo market is freezing up again came from the overnight general collateral rate itself, which after posting in the 1.80%-1.90% range for much of the past two weeks, spiked as high as 2.275% overnight and was last seen at 2.15%, well above the fed funds upper range…

‘The powers that be would rather us experience a mad max world while they hide in luxury bunkers, than allow a treasury issued gold backed currency, absent a central bank once again’

Source: ZeroHedge

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Fed Announces QE4 One Day After BIS Warns QE Has Broken The Market

Following Fed Chair Powell’s surprising announcement today that the Fed was resuming Permanent Open Market Operations after a 5 year hiatus, just as we said last month that it would (see “The Fed Will Restart QE In November: This Is How It Will Do It“)…

… there was a brief debate whether the Fed’s soon to be permanent expansion in its balance sheet is QE or not QE. The answer to this semantic debate simple: Powell defined Quantitative Tightening as removing reserves from the system. Thus, by that simple definition, adding reserves to the system on a permanent basis via permanent open market operations, i.e., bond purchases, is Quantitative Easing. Incidentally, the repo market fireworks were just a smokescreen: the real reason why the Fed is resuming QE is far simpler: the US has facing an avalanche of debt issuance and with China and Japan barely able to keep up, someone has to buy this debt. That someone: the Fed.

And just to shut up anyone who still wants to call the upcoming $400BN expansion in the Fed’s balance sheet, as represented in the following chart by Goldman…

… QE-Lite, here is JPMorgan comparing what is coming with what has been: at a $21BN in monthly 10Yr equivalent TSY purchases, the “upcoming” operation is the same size as QE1.

Yet semantic bullshit aside, what is most infuriating about Powell’s “shocking” announcement (which we previewed a few weeks ago) is that it took place just one day after the central banks’ central bank, the Bank of International Settlements, finally caught up with what we first said in 2009 – for economists being only 10 years behind the curve is actually not terrible – and wrote that “the unprecedented growth in central banks’ balance sheets since the financial crisis has had a negative impact on the way in which financial markets function.”

Ignoring the fact that central bank policies are responsible for such phenomena as Brexit and Trump, as it is the flawed monetary policy of the past decade that made the rich richer beyond their wildest dreams by expanding the biggest asset bubble in history, while destroying the middle class…

… it is disgusting that even as the Fed’s own supervisor admits that its balance sheet expanding policies have broken the market – something this “tinfoil” conspiracy blog has been saying since 2008 – the Fed is doing even more of the same, ensuring that the market will be more broken than ever!

So what was this startling epiphany? According to the BIS, while the immediate impact of this massive balance sheet expansion had eased the severe market strains created by the 2008 financial crisis, there had been several negative side-effects. These included a scarcity of bonds available for investors to purchase, squeezed liquidity in some markets, higher levels of bank reserves and fewer market operators actively trading in some areas.

In short: last month’s repo crisis is a direct consequence of central banks’ own actions. as Scott Skyrm explained earlier.

“Lower trading volumes and price volatility, compressed credit spreads and flatter term structures may reduce the attractiveness of investing and dealing in bond markets,” the BIS said in the Monday report. “Some players may leave the market altogether, resulting in a more concentrated and homogenous set of investors and fewer dealers.”

This “could result in market malfunctioning when large central bank balance sheets are eventually unwound”, the BIS warned, adding that “it could make it more difficult for reserves to be redistributed effectively between market participants.” Of course, the BIS was clearly joking because even five-year olds know balance sheets will never be unwound.

Additionally, the BIS went on to point out that negative impacts have been more prevalent when central banks hold a larger share of outstanding assets, as the FT reportedmajor central banks’ holdings of domestic sovereign bonds range from 20% of outstanding paper at the US Fed to over 40% in Japan.

But the BIS said these side-effects had so far only rarely affected financial conditions in such a way as to impede central banks’ monetary policymaking, though it added that the full consequences were unlikely to become clear until major central banks started to shrink their balance sheets.

Worse, the BIS noted that regulations demanding liquidity at large banks might discourage the banks from offering to lend out their reserves — a source of same-day liquidity — into overnight markets. This is similar to what the large banks themselves have said in the last month. But the BIS also noted that since the financial crisis, risk management practices might have changed within the banks themselves.

Sadly, the Fed – which is fully aware of all of this – decided to ignore everything the BIS warned about, and by launching more POMO/QE/”don’t call it QE”, just ensured that the next financial crisis will be the last one.

“So looks like the banks are being re-capitalized, (bailed out) and lower rates are coming, zero or negative.. well.. now the banks can borrow cash for zero, or less directly from the Fed., then shell out loans and credit cards at exorbitant rates to We The People… oh… you are not supposed to know this… (don’t share)…”

Source: ZeroHedge

The Repo Market Incident May Be The Tip Of The Iceberg

(Daniel Lacalle) The Federal Reserve has injected $278 billion into the securities repurchase market for the first time. Numerous justifications have been provided to explain why this has happened and, more importantly, why it lasted for various days. The first explanation was quite simplistic: an unexpected tax payment. This made no sense. If there is ample liquidity and investors are happy to take financing positions at negative rates all over the world, the abrupt rise in repo rates would simply vanish in a few hours.

Let us start with definitions. The repo market is where borrowers seeking cash offer lenders collateral in the form of safe securities.  Repo rates are the interest rate paid to borrow cash in exchange for Treasuries for 24 hours.

Sudden bursts in the repo lending market are not unusual. What is unusual is that it takes days to normalize and even more unusual to see that the Federal Reserve needs to inject hundreds of billions in a few days to offset the unstoppable rise in short-term rates.

Because liquidity is ample, thirst for yield is enormous and financial players are financially more solvent than years ago, right? Wrong.

What the Repo Market Crisis shows us is that liquidity is substantially lower than what the Federal Reserve believes, that fear of contagion and rising risk are evident in the weakest link of the financial repression machine (the overnight market) and, more importantly, that liquidity providers probably have significantly more leverage than many expected.

In summary, the ongoing -and likely to return- burst in the repo market is telling us that risk and debt accumulation are much higher than estimated. Central banks believed they could create a Tsunami of liquidity and manage the waves. However, like those children’s toys where you press one block and another one rises, the repo market is showing us a symptom of debt saturation and massive risk accumulation.

When did hedge funds and other liquidity providers stop accepting Treasuries for short-term operations? It is easy money! You get a  safe asset, provide cash to borrowers, and take a few points above and beyond the market rate. Easy money.  Are we not living in a  world of thirst for yield and massive liquidity willing to lend at almost any rate?

Well, it would be easy money… Unless all the chain in the exchange process is manipulated and rates too low for those operators to accept even more risk.

In essence, what the repo issue is telling us is that the Fed cannot make magic. The central planners believed the Fed could create just the right inflation, manage the curve while remaining behind it, provide enough liquidity but not too much while nudging investors to longer-term securities. Basically,  the repo crisis -because it is a crisis- is telling us that liquidity providers are aware that the price of money, the assets used as collateral and the borrowers’ ability to repay are all artificially manipulated. That the safe asset is not as safe into a recession or global slowdown, that the price of money set by the Fed is incoherent with the reality of the risk and inflation in the economy, and that the liquidity providers cannot accept any more expensive “safe” assets even at higher rates because the rates are not close to enough, the asset is not even close to be safe and the debt and risk accumulated in other positions in their portfolio is too high and rising.

The repo market turmoil could have been justified if it had lasted one day.  However, it has taken a disguised quantitative easing purchase program to mildly contain it.

This is a symptom of a larger problem that is starting to manifest in apparently unconnected events, like the failed auctions of negative-yielding eurozone bonds or the bankruptcy of companies that barely needed the equivalent of one day of repo market injection to finance the working capital of another year.

This is a symptom of debt saturation and massive risk accumulation.  The evidence of the possibility of a major global slowdown, even a synchronized recession,  is showing that what financial institutions and investors have hoarded in recent years,  high-risk, low-return assets, is more dangerous than many of us believed.

It is very likely that the Fed injections become a norm, not an anomaly, and the Fed’s balance sheet is already rising. Like we have mentioned in China so many times, these injections are a symptom of a much more dangerous problem in the economy. The destruction of the credit mechanism through constant manipulation of rates and liquidity has created a much larger bubble than any of us can imagine. Like we have seen in China, it is part of the zombification of the economy and the proof that unconventional monetary measures have created much larger imbalances than the central planners expected.

The repo crisis tells us one thing. The collateral damages of excess liquidity include the destruction of the credit transmission mechanism, disguising the real assessment of risk and, more importantly, leads to a synchronized excess in debt that will not be solved by lower rates and more liquidity injections.

Many want to tell us that this episode is temporary. It has happened in the most advanced, diversified and competitive financial market. Now imagine if it happens in the Eurozone, for example.  This is, like the inverted yield curve and the massive rise in negative-yielding bonds, the tip of a truly scary iceberg.

Source: by Daniel Lacalle

Dollar Shortage Returns As Repo Usage Rises To Highest In A Week

This was the third consecutive increase in repo op usage, the highest in a week and the second highest since the start of the month.

Global Debt & Liquidity Crisis Update: NY Fed Announces Extension Of Overnight Repos Until Nov 4, Will Offer 8 More Term Repos

The Fed’s “temporary” liquidity injections are starting to look rather permanent…

Anyone who expected that the easing of the quarter-end funding squeeze in the repo market would mean the Fed would gradually fade its interventions in the repo market, was disappointed on Friday afternoon when the NY Fed announced it would extend the duration of overnight repo operations (with a total size of $75BN) for at least another month, while also offering no less than eight 2-week term repo operations until November 4, 2019, which confirms that the funding unlocked via term repo is no longer merely a part of the quarter-end arsenal but an integral part of the Fed’s overall “temporary” open market operations… which are starting to look quite permanent.

This is the statement published today by the NY Fed:

In accordance with the most recent Federal Open Market Committee (FOMC) directive, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York will conduct a series of overnight and term repurchase agreement (repo) operations to help maintain the federal funds rate within the target range.

Effective the week of October 7, the Desk will offer term repos through the end of October as indicated in the schedule below. The Desk will continue to offer daily overnight repos for an aggregate amount of at least $75 billion each through Monday, November 4, 2019.

Securities eligible as collateral include Treasury, agency debt, and agency mortgage-backed securities. Awarded amounts may be less than the amount offered, depending on the total quantity of eligible propositions submitted. Additional details about the operations will be released each afternoon for the following day’s operation(s) on the Repurchase Agreement Operational Details web page. The operation schedule and parameters are subject to change if market conditions warrant or should the FOMC alter its guidance to the Desk.  

What this means is that until such time as the Fed launches Permanent Open Market Operations – either at the November or December FOMC meeting, which according to JPMorgan will be roughly $37BN per month, or approximately the same size as QE1…

… the NY Fed will continue to inject liquidity via the now standard TOMOs: overnight and term repos. At that point, watch as the Fed’s balance sheet, which rose by $185BN in the past month, continues rising indefinitely as QE4 is quietly launched to no fanfare.

And remember: whatever you do, don’t call it QE4!

Trader Gregory Mannarino breaks it down… 

Source: ZeroHedge

Global Debt & Liquidity Crisis Update: Emergency Capital Injections From $75B Per Day Now Required To Keep The Banking System From Seizing (video)

The Fed is scheduled to pump ‘at least’ $75B in Emergency Capital Injections every day, between today and October 10th, to presumably keep the entire banking system from locking up.

Please, read it for yourself (here)

This means at a minimum, the Fed is prepared to inject nearly three times more money into the system in two weeks than during the entire TARP program between 2008-2012.

What happens after October 10th?

Global Debt & Liquidity Crisis Update: Thomas Cook Files for U.S. Bankruptcy Protection

Just like That: Roughly 600,000 travelers are stranded around the world after the British travel provider Thomas Cook declares bankruptcy…

StudioPortoSabbia/Shutterstock

Thomas Cook, a 178-year-old British travel company and airline, declared bankruptcy early Monday morning, suspending operations and leaving hundreds of thousands of tourists stranded around the world.

The travel company operates its own airline, with a fleet of nearly 50 medium- and long-range jets, and owns several smaller airlines and subsidiaries, including the German carrier Condor. Thomas Cook still had several flights in the air as of Sunday night but was expected to cease operations once they landed at their destinations.

Condor posted a message to its site late Sunday night saying that it was still operating but that it was unclear whether that would change. Condor’s scheduled Monday-morning flights appeared to be operating normally.

About 600,000 Thomas Cook customers were traveling at the time of the collapse, of whom 150,000 were British, the company told CNN.

The British Department for Transport and Civil Aviation Authority prepared plans, under the code name “Operation Matterhorn,” to repatriate stranded British passengers. According to the British aviation authority, those rescue flights would take place until October 6, leading to the possibility that travelers could be delayed for up to two weeks.

Initial rescue flights seemed poised to begin immediately, with stranded passengers posting on Twitter that they were being delayed only a few hours as they awaited chartered flights.

The scale of the task has reports calling it the largest peacetime repatriation effort in British history, including the operation the government carried out when Monarch Airlines collapsed in 2017.

Costs of the flights were expected to be covered by the ATOL, or Air Travel Organiser’s License, protection plan, a fund that provides for repatriation of British travelers if an airline ceases operations.

Airplanes from British Airways and EasyJet would be among those transporting stranded passengers home, according to The Guardian, as well as chartered planes from leasing companies and other airlines. Thomas Cook Airlines’ destinations included parts of mainland Europe, Africa, the US, the Caribbean, and the Middle East. Airplanes were being flown to those destinations on Sunday night, according to the BBC.

Global debt and liquidity crisis discussion…

Source: by David Slotnick | Business Insider

***

Thomas Cook refund website sees 40,000 claims on day one

First Ever Triple Bubble in Stocks, Real Estate & Bonds – With Nick Barisheff

We are living in an age of records in the financial world. The stock market is in its longest bull market in history and near all-time highs.  The world has more debt than ever before while interest rates are near record lows, and some are negative in many countries for the first time ever.  Nick Barisheff, CEO of Bullion Management Group (BMG), is seeing a dark ending for the era of financial records. Barisheff explains,

“I have been in the business for 40 years, and this is the first time we have had a simultaneous triple bubble, a bubble in real estate, stocks and bonds all at the same time.  In 1999, it was a stock bubble. In 2007, it was a real estate bubble. This time, we’ve got a triple simultaneous bubble.  So, when we have the correction, it’s going to be massive. Value calculations on equities say it’s worse than 1999, and in some cases worse than 1929. The big problem is this triple bubble is sitting on a mountain of debt like never before.”

What is going to be the reaction to this record bubble in everything crashing?  Barisheff says, “I think you are going to be getting riots in the streets.  It’s already happening in California. CalPERS is the pension fund administrator for a lot of the pension funds in California. So, already retired teachers, firefighters and policemen that are sitting in retirement getting their pension checks all got letters saying sorry, your pension checks from now on are going to be reduced by 60%.  How do you get by then?”

What happens if the meltdown picks up speed and casualties?  Barisheff says,

“I think the only option will be for the government is to print more money and postpone the problem yet a little bit longer, but that leads to massive inflation and eventually hyperinflation.  Every fiat currency that has ever existed has always ended in hyperinflation, every single one.  Since 1800, there have been 56 hyper inflations. Hyperinflation is defined as 50% inflation per month.  That’s where we are going and what other choice is there?”

So, what do you do?  Barisheff says,

“In the U.S. dollar since 2000, gold is up an average of 9.4% per year. In some countries, it’s up 14% and so on.  If you take the overall average of all the countries, the average increase is 10% a year.  Every time Warren Buffett is on CNBC, he seems to go out of his way to disparage gold, but if you look at a chart of Berkshire Hathaway and gold, gold has outperformed Berkshire Hathaway. . .  Everybody worships Warren Buffett as the best investor in the world, and gold has outperformed his fund in U.S. dollars.  I would not disparage gold if I were him. I’d keep quiet about it.”

There is a first for Barisheff, too, in this financial environment.  He says for the first time ever, he’s “100% invested in gold” as a percentage of his portfolio.  He says the bottom “is in for gold,” and “the bottom is in for silver, too.”

Barisheff contends that with the record bubbles and the record debt, both gold and silver will be setting new all-time high records as well in the not-so-distant future.

Join Greg Hunter of USAWatchdog.com as he goes One-on-One with Nick Barisheff, CEO of BMG and the author of the popular book “$10,000 Gold.”