Analyst Who Called The Repo Squeeze Warns On ‘Combustible Cocktail’ Into Year-End

Analyst Who Called The Repo Squeeze Warns On ‘Combustible Cocktail’ Into Year-End

BofA's Mark Cabana - who repeatedly warned about a possibly imminent squeeze in short-term funding markets prior to the acute episode that grabbed headlines late last month and caught the Fed flat-footed - is worried that a "combustible cocktail" may create the conditions for another such episode at the end of the year. The Fed has, of course, taken decisive steps to ameliorate the situation, grease the proverbial wheels and otherwise address reserve scarcity. Overnight and term repos (institut
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2 thoughts on “Analyst Who Called The Repo Squeeze Warns On ‘Combustible Cocktail’ Into Year-End

  1. Speaking of cash, I found this bit while surfing:

    Treasuring cash
    Why does the U.S. Treasury have so much cash at the Fed?

    First, late in 2008 the Treasury suspended its cash reinvestment program. It used to make short-term loans to banks that needed liquidity. Given low interest rates and the fact that banks have been holding excess reserves, this program hasn’t been necessary, and so the Treasury is holding more cash. Second, since late 2015 the Treasury has been purposefully holding more cash to be prepared for any major disruptions, such as a potential cyber event or a systemic event like the crisis in 2008.

    https://fredblog.stlouisfed.org/2017/10/treasuring-cash/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog

    Then, venturing into a darker space @ FRED, looked at this:

    Collateralization of Currency: Memo Items: U.S. Treasury, Agency Debt, and Mortgage-Backed Securities Eligible to Be Pledged

    https://fred.stlouisfed.org/graph/?g=plSa

  2. It all seems like a wonderful game how to keep the juggling balls up in the air until they suddenly start dropping, because there are too many cash requirement holes to fill. It clarifies a bit how the whole system can start collapsing due to the continued requirement to expand the financial needs. Thanks for the insights.

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