https://zh-prod-1cc738ca-7d3b-4a72-b792-20bd8d8fa069.storage.googleapis.com/s3fs-public/styles/max_650x650/public/2020-01/term repo 1.7.jpg?itok=FtF5RuEA
And just like that, the repo market is on the fritz once again.
More than two weeks after the last oversubscribed term repo operation on December 16, moments ago the Fed announced that Dealers are once again scrambling for liquidity, submitting $41.12BN in securities ($30.7BN in TSYs, $10.42BN in MBS) into today's 2-week repo operation, which was oversubscribed hitting the maximum operation limit of $35BN.
Today - Oversubscription - Liquidity - Shortage - Year-end
Today's oversubscription was ominous because while the liquidity shortage into year-end was expected, and justified the barrage of term repos ahead of the "turn", the liquidity shortage was supposed to normalize after the new year. Alas, that appears to not have happened, and today's submission was the highest since Dec 16.
One reason for today's repo spike is that as we noted last Friday, this is the first week that sees substantial term repo maturities and liquidity drainage, as follows:
Today - Term - Repo - Yesterday - Repo
But wait there's more: today's oversubscribed term repo, coupled with yesterday's overnight repo...
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