Yoshua wrote:The global Repo market is a USD 5 Trillion daily operation.
If demand is higher than supply, then the price (in this case the interest rate) goes up.
We can at least conclude that demand is higher than supply.
What if the Repo demand has risen to USD 6 Trillion?
What if there are now two Bank A agains one Bank B?
Except that, as I keep pointing out, aside from the big spike in September, rates have been quite calm. Supposedly, the FED repo operations have been "insurance" to help ensure they stay calm. With the rates hovering around 2 percent, the interest rate isn't going up, at least on a sustained basis. In fact, since the spike almost 5 weeks ago, the repo interest rate has, IMO, been very steady. And for US treasury paper overall, the interest rate is remarkably low, according to the Fed.
https://apps.newyorkfed.org/markets/autorates/sofrSo the idea that there is "too much demand" doesn't seem to make a lot of sense, does it? Also note that the volume trend of the overall overnight funding has been decreasing over the past month. Again, not a sign of panic or demand increasing. (Black line in chart near bottom of document).
The repo market is HUGE.
https://www.sifma.org/resources/researc ... heet-2019/This paper explains a lot of stuff about the repo and reverse repo market in terms which are pretty easy to grasp. It also confirms the scale of the repo market globally. It also talks about risks and benefits of the market.
https://www.bis.org/publ/cgfs59.pdf...
Bottom line, the scale of this issue is small compared to the overall market. It's fun for armchair pundits looking for doom around every corner to point at every unusual statistic and scream "crash" or "imminent doom", but with so few facts vs. hype, and given the scale of daily operations anyway, not exactly convincing.
Again, I'm not surprised that the usual suspects re self-interested sources like zerohedge and gold and silver sellers are screaming their heads off about this. Gold and Silver sellers have been predicting "hyperinflation" every chance they see to sell some extra PM's for many decades now. Gold and silver have indeed risen since I started paying attention in 1985, but roughly in line with inflation overall, and FAR FAR less than the stock markets overall.
The over-reaction here reminds me of the frequent over-reaction to the oil markets.
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If anything, given the scale and persistence of deficits the US and many other developed countries faced, it's counter-intuitive how calm the debt markets are. OTOH, it's not like this is new news. Markets look ahead, and unlike people with certain endless agendas, markets absorb and trade based on credible information.