Loading ...Appears the Fed has managed to keep Zoltan’s end of the world at bay.
Generally I guess when things are as well known as predictions like his and mentioned on CNBS, they aren’t going to happen.
It made for interesting hope though, and at least pm’s aren’t yet getting spanked on a Monday am.
Bottom line: after Pozsar’s apocalyptic forecast prompted the Fed to unleash a liquidity tsunami, fears about an imminent seizure in the repo market have faded, with BofA’s Cabana now writing that “overall, the Fed’s guiding hand should make market participants comfortable not to fear material repo stress around the mid-Dec corporate tax date and to believe any year-end funding pressures should be relatively short lived.”
Still, as Skyrm cautions, “there is still one major phantom year-end risk looming around the market. If the Fed’s term RP operations fully fund the Primary Dealer bank balance sheets and the banks cannot increase their balance sheets further, the last few Fed operations of the month might not have any takers. There is a chance there will be little Primary Dealer bank balance sheet left by year-end.”
In any case, when looking at tomorrow’s massive $100 billion liquidity drain, the repo market should be able to digest it without a spike in the G/C repo rate now that the Fed has effectively backstopped any and all year-end liquidity needs. If, however, the first repo prints come in elevated: at 2% or higher, it will mean that not even the Fed’s half a trillion dollar liquidity injection was enough, and that Pozsar’s fire and brimstone forecast is starting to come true.