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The chart is about 'repo operations.' I don't think I trust this website to properly explain what those are or what it means.

by skybrian 10mo ago

jeffbee 10mo ago
Imagine zooming out the chart to a relevant timeframe. Bottom of https://www.newyorkfed.org/markets/desk-operations/repo https://www.newyorkfed.org/markets/desk-operations/repo ... click "all"
- jtbayly 10mo ago
  Now I'm curious. I don't understand what repo is, but why did it not happen at all for 5 years?
  - jeffbee 10mo ago
    When the interest rate was zero they could borrow infinite overnight funds for nothing. When the interest rate is 3.75% it stops being a free facility. Also, post COVID, the Fed was flooding the economy with cash and market participants actually had the opposite problem: they were coming to the reverse repo facility (https://www.newyorkfed.org/markets/desk-operations/reverse-repo https://www.newyorkfed.org/markets/desk-operations/reverse-r...). That flood has subsided, so repo activity is returning to pre-COVID norms. Despite the tone of the OP, the people who exchange securities for cash at the repo facility are paying not just the fed rate, but a higher punitive rate. It is expensive, by design, so banks seek liquidity deals privately if they can. It is not, in any sense, bags of money from helicopters.
f33d5173 10mo ago
They say > To get the cash, banks hand over Treasury notes and bonds, mortgages, and other securities, known as a “repo.” Then they get to borrow cash at face value. Does that meet your standards?
- jeffbee 10mo ago
  It is a partial definition. To use the repo facility, borrowers don't just stake their assets, they also promise to re-buy them hours later at a higher price. It is literally overnight money issued in exchange for high-quality assets. If somehow the borrower goes broke within a few minutes, the Fed is still holding their assets. Edit: I forgot about the haircut. The repo only lends out 98% of the staked assets value.

The chart is about 'repo operations.' I don't think I trust this website to properly explain what those are or what it means.

jeffbee 10mo ago

Imagine zooming out the chart to a relevant timeframe. Bottom of https://www.newyorkfed.org/markets/desk-operations/repo https://www.newyorkfed.org/markets/desk-operations/repo ... click "all"

jtbayly 10mo ago
Now I'm curious. I don't understand what repo is, but why did it not happen at all for 5 years?
- jeffbee 10mo ago
  When the interest rate was zero they could borrow infinite overnight funds for nothing. When the interest rate is 3.75% it stops being a free facility. Also, post COVID, the Fed was flooding the economy with cash and market participants actually had the opposite problem: they were coming to the reverse repo facility (https://www.newyorkfed.org/markets/desk-operations/reverse-repo https://www.newyorkfed.org/markets/desk-operations/reverse-r...). That flood has subsided, so repo activity is returning to pre-COVID norms. Despite the tone of the OP, the people who exchange securities for cash at the repo facility are paying not just the fed rate, but a higher punitive rate. It is expensive, by design, so banks seek liquidity deals privately if they can. It is not, in any sense, bags of money from helicopters.

f33d5173 10mo ago

They say > To get the cash, banks hand over Treasury notes and bonds, mortgages, and other securities, known as a “repo.” Then they get to borrow cash at face value. Does that meet your standards?

jeffbee 10mo ago
It is a partial definition. To use the repo facility, borrowers don't just stake their assets, they also promise to re-buy them hours later at a higher price. It is literally overnight money issued in exchange for high-quality assets. If somehow the borrower goes broke within a few minutes, the Fed is still holding their assets. Edit: I forgot about the haircut. The repo only lends out 98% of the staked assets value.