Repo Madness

  • The pressure is mounting on the Federal Reserve to take more aggressive steps to address stress in U.S. funding markets as swap spreads tumbled to record lows Thursday. 
  • The New York Fed is planning a fourth temporary liquidity injection Friday, and the moves have helped to allay concern after repo rates soared to 10% Tuesday.
  • Still, the dollar-funding squeeze could get worse with the end of the quarter approaching, raising the possibility that liquidity-providing banks will retreat to close their books and meet capital needs.
  • Meanwhile, another round of Treasury auctions next week could leave markets short an additional $45Bn in cash.
  • Over in China, analysts called for stronger easing signals after the People’s Bank of China only slightly lowered the one-year reference rate for bank loans, a new gauge of borrowing costs

(Source: Bloomberg)