Repo Market Chaos Could Lead to a Crisis

Posted On September 19, 2019 3:02 pm
By: Steve Smith

Chaos in short-term funding markets this week forced the Federal Reserve to step in with a series of overnight rescue operations to help keep credit flowing through the financial system.

A week after seeing yields across most maturities back up sharply something seemed to go haywire in the Federal Reserve’s overnight or repo rate which spiked to almost 10% earlier in the week forcing the Fed to inject liquidity into the system.

Earlier this month, it seemed certain interest rates in the U.S. would follow much of the rest of the world toward zero with a yield on the 10-year slipping below 1.45%. But, then there was a quick reversal and yield popped back above 2% briefly. This seemed to have caught a lot of institutions wrong-footed and scrambling for cash.

The repo market channels more than $1 trillion in funds through Wall Street every day, usually without fanfare. That money is… Continue reading at StockNews.com

Tagged with: Federal Reserve

About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.