Comments on: Repos Fails and the TSLF http://www.aleablog.com/repos-fails-and-the-tslf/ Alea Jacta Est Wed, 20 Aug 2008 16:58:13 +0000 http://wordpress.org/?v=2.6.1 By: jck http://www.aleablog.com/repos-fails-and-the-tslf/#comment-983 jck Wed, 26 Mar 2008 10:52:44 +0000 http://www.aleablog.com/?p=799#comment-983 john jansen: if there is a link in your comment, it won't appear immediately. Other than that if the comment is pertinent you can self-promote as you please. I will put some data on treasuries supply and that shows that supply is tight mostly because of "foreign" hoarding. john jansen:
if there is a link in your comment, it won’t appear immediately. Other than that if the comment is pertinent you can self-promote as you please.
I will put some data on treasuries supply and that shows that supply is tight mostly because of “foreign” hoarding.

]]> By: barry http://www.aleablog.com/repos-fails-and-the-tslf/#comment-982 barry Wed, 26 Mar 2008 07:32:21 +0000 http://www.aleablog.com/?p=799#comment-982 sammy -- many thanks for that article. very informative. However, I do have a question for you. What does it say about the health of the financial system where an investor doesn't want precious Treasury collateral leaving his control for even a day? Has the entire street become Drysdale Securities? sammy — many thanks for that article. very informative. However, I do have a question for you. What does it say about the health of the financial system where an investor doesn’t want precious Treasury collateral leaving his control for even a day? Has the entire street become Drysdale Securities?

]]> By: RichL http://www.aleablog.com/repos-fails-and-the-tslf/#comment-981 RichL Wed, 26 Mar 2008 01:49:22 +0000 http://www.aleablog.com/?p=799#comment-981 I'm no expert in the govvies market, but I can add that any corporation that has formerly "safe", but now illiquid, short-term investments is facing at minimum severe embarrassment and at worst genuine liquidity problems. All this aggravation to get an extra 50 bps return on cash when this type of risk assessment isn't your primary business. It leads to a preference for the genuine safe article, and the return be damned, which is why t-bills are in demand at quarter end. I’m no expert in the govvies market, but I can add that any corporation that has formerly “safe”, but now illiquid, short-term investments is facing at minimum severe embarrassment and at worst genuine liquidity problems. All this aggravation to get an extra 50 bps return on cash when this type of risk assessment isn’t your primary business.

It leads to a preference for the genuine safe article, and the return be damned, which is why t-bills are in demand at quarter end.

]]> By: dr.dan http://www.aleablog.com/repos-fails-and-the-tslf/#comment-980 dr.dan Wed, 26 Mar 2008 00:54:51 +0000 http://www.aleablog.com/?p=799#comment-980 good one sammy boy ... good one sammy boy …

]]> By: john j jansen http://www.aleablog.com/repos-fails-and-the-tslf/#comment-979 john j jansen Wed, 26 Mar 2008 00:07:03 +0000 http://www.aleablog.com/?p=799#comment-979 i am not sure what the etiquette is on self promotion but if i have crossed the line I apologize. i wrote on this topic at my blog today. Here is a link to one of the posts. http://acrossthecurve.com/?p=545 Separately, I chatted with a friend who is a salesman for a large primary dealer and he suggested that there has been a structural change in the repo market in that sec lenders have changed there modus operandi and that fear has made them much more circumscribed in their lending practices. i called one sec lender with whom i had a relationship in a former incarnation but he refused to comment in a meanigful way. I wonder if anyone has any info or that topic. Thanks. JJJ i am not sure what the etiquette is on self promotion but if i have crossed the line I apologize. i wrote on this topic at my blog today. Here is a link to one of the posts.

http://acrossthecurve.com/?p=545

Separately, I chatted with a friend who is a salesman for a large primary dealer and he suggested that there has been a structural change in the repo market in that sec lenders have changed there modus operandi and that fear has made them much more circumscribed in their lending practices.

i called one sec lender with whom i had a relationship in a former incarnation but he refused to comment in a meanigful way.

I wonder if anyone has any info or that topic.

Thanks.

JJJ

]]> By: Tuesday links: market discipline « Abnormal Returns http://www.aleablog.com/repos-fails-and-the-tslf/#comment-978 Tuesday links: market discipline « Abnormal Returns Tue, 25 Mar 2008 16:05:16 +0000 http://www.aleablog.com/?p=799#comment-978 [...] entire Treasury market is “on special.” (Alea, FT [...] [...] entire Treasury market is “on special.” (Alea, FT [...]

]]> By: sammy http://www.aleablog.com/repos-fails-and-the-tslf/#comment-977 sammy Tue, 25 Mar 2008 15:43:53 +0000 http://www.aleablog.com/?p=799#comment-977 http://www.ny.frb.org/research/epr/06v12n1/0605garb.pdf http://www.ny.frb.org/research/epr/06v12n1/0605garb.pdf

]]> By: sammy http://www.aleablog.com/repos-fails-and-the-tslf/#comment-976 sammy Tue, 25 Mar 2008 15:43:07 +0000 http://www.aleablog.com/?p=799#comment-976 Drysdale case happened long time ago when the repo trading system was immature. AT that time, the securities dealers and the banks did not take into account the accrued intersts in calculating margin. So after the coupon payments, the market value of the treasury fell sharply and led to big shortage of margin. Today, there's no such margin shortage happens. Moreover, what's happening in the repos currently is other way around. Now they cannot lend money because no one wants to provide Treasury even as a collateral. That's why the repo rate is so ridiculously low. Again, no worry! Drysdale case happened long time ago when the repo trading system was immature. AT that time, the securities dealers and the banks did not take into account the accrued intersts in calculating margin. So after the coupon payments, the market value of the treasury fell sharply and led to big shortage of margin.

Today, there’s no such margin shortage happens.

Moreover, what’s happening in the repos currently is other way around.
Now they cannot lend money because no one wants to provide Treasury even as a collateral. That’s why the repo rate is so ridiculously low.

Again, no worry!

]]> By: TheWord http://www.aleablog.com/repos-fails-and-the-tslf/#comment-975 TheWord Tue, 25 Mar 2008 15:25:56 +0000 http://www.aleablog.com/?p=799#comment-975 Hmmm...so, we have the US Treasury blowing the bond markets' collective minds by announcing massively higher auctions than previously announced, causing yields to spike. Then, on the other side of the table, we have the Fed telling all comers that they'll swap them their MBS's and associated paper for good ol' US T-Bills at 2.6%, draining their own balance sheet to the tune of $260bn since Xmas. What a mess!! At this rate, will there be any official US institution solvent by the end of the year? Hmmm…so, we have the US Treasury blowing the bond markets’ collective minds by announcing massively higher auctions than previously announced, causing yields to spike.

Then, on the other side of the table, we have the Fed telling all comers that they’ll swap them their MBS’s and associated paper for good ol’ US T-Bills at 2.6%, draining their own balance sheet to the tune of $260bn since Xmas.

What a mess!!

At this rate, will there be any official US institution solvent by the end of the year?

]]> By: jck http://www.aleablog.com/repos-fails-and-the-tslf/#comment-974 jck Tue, 25 Mar 2008 14:51:16 +0000 http://www.aleablog.com/?p=799#comment-974 markit: here is a link on Drysdale http://www.time.com/time/magazine/article/0,9171,925426,00.html markit:
here is a link on Drysdale
http://www.time.com/time/magazine/article/0,9171,925426,00.html

]]> By: Markit http://www.aleablog.com/repos-fails-and-the-tslf/#comment-973 Markit Tue, 25 Mar 2008 14:37:53 +0000 http://www.aleablog.com/?p=799#comment-973 Dysdale was 1982, I believe. Don't forget 1974 that Franklin National Banks also had similar problems and failed (even after the Fed tried and rescue them, a pre-historic Northern Rock). And in February 1985, Gold shot up $40 in a day (back when it was under $300 so it would be equivalent to nearly $150 move today). That blew up a gold trading firm called Volume investors. They engaged in a strategy called "rolling for credit" and were short about 12,000 call options when gold surged. Volume had repos with ESM Government securities. Volume took down ESM. ESM's failure caused a S&L in Cincy called Home State Savings to go insolvent. Before Home State closed, they all but depleted the Ohio S&L emergency fund. When word of this running out of cash was made public, all the Ohio S&Ls had a bank run. Pictures of the event look exactly like Nrthern Rock today, people were standing in line in front of dozens of Ohio S&Ls demanding their money back. Evantually the old FSLIC came to the rescue (not before few Maryland S&Ls also had runs). Finally, on May 31, 1985 seven S&Ls were declared insolvent in one day. This is the all-time record for a number in one day. This did not even happen in the great depression. So, who cares about Repo? It's all collateralized and can never lead to problems, right? Dysdale was 1982, I believe.

Don’t forget 1974 that Franklin National Banks also had similar problems and failed (even after the Fed tried and rescue them, a pre-historic Northern Rock).

And in February 1985, Gold shot up $40 in a day (back when it was under $300 so it would be equivalent to nearly $150 move today). That blew up a gold trading firm called Volume investors. They engaged in a strategy called “rolling for credit” and were short about 12,000 call options when gold surged. Volume had repos with ESM Government securities. Volume took down ESM. ESM’s failure caused a S&L in Cincy called Home State Savings to go insolvent. Before Home State closed, they all but depleted the Ohio S&L emergency fund. When word of this running out of cash was made public, all the Ohio S&Ls had a bank run. Pictures of the event look exactly like Nrthern Rock today, people were standing in line in front of dozens of Ohio S&Ls demanding their money back. Evantually the old FSLIC came to the rescue (not before few Maryland S&Ls also had runs). Finally, on May 31, 1985 seven S&Ls were declared insolvent in one day. This is the all-time record for a number in one day. This did not even happen in the great depression.

So, who cares about Repo? It’s all collateralized and can never lead to problems, right?

]]> By: jck http://www.aleablog.com/repos-fails-and-the-tslf/#comment-972 jck Tue, 25 Mar 2008 14:12:27 +0000 http://www.aleablog.com/?p=799#comment-972 barry: good one ! barry:
good one !

]]> By: barry http://www.aleablog.com/repos-fails-and-the-tslf/#comment-971 barry Tue, 25 Mar 2008 13:59:45 +0000 http://www.aleablog.com/?p=799#comment-971 sammy, I take it you've never heard of Drysdale Securities? sammy,

I take it you’ve never heard of Drysdale Securities?

]]> By: sammy http://www.aleablog.com/repos-fails-and-the-tslf/#comment-970 sammy Tue, 25 Mar 2008 11:20:54 +0000 http://www.aleablog.com/?p=799#comment-970 Repo market cannot shake the financial market because there's no credit issue. Repo is repo because you don't really "lend" or "borrow" money. Failures in repo is no worry. Repo market cannot shake the financial market because there’s no credit issue.
Repo is repo because you don’t really “lend” or “borrow” money.
Failures in repo is no worry.

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