What Is The Repo Market?

People know to talk about repo, but don’t actually know what it is about. What is repo? Why does it matter?

EU Periphery Bonds Fly Off The Shelves!

Demand for Eurozone Periphery Sovereign Debt is sizzlingly high

The Eurozone’s periphery has been having a debt bonanza of late, with Spain, Italy, and Portugal seeing investors queuing up to buy their debt issuance. Which is a very strange sentence for anyone familiar with the European debt crisis to be reading (and typing).

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What You Need To Know About The Fed’s Reverse Repo 1

The Repo market is the largest market that people do not know exists

Wednesday’s FOMC minutes revealed something startling.

Staff at the Federal Reserve reported that takeup of their Overnight Reverse Repo Facility reached $100 billion. Except that this was for their meeting at the end of April.

Now, about three weeks later, takeup has reached almost $300 billion!

Why the sudden and dramatic increase?

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What You Need To Know About The Fed’s Reverse Repo 2

The Repo market is the largest market that people do not know exists

Furthermore, it is important to remember that these reverse repo transactions unwind.

Which means that the reserves will come back to sit on banks’ balance sheets. Banks are okay with this now since the interest rate that the Fed pays for effectively borrowing banks’ reserves is 0%.

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QE vs Repo 1: The Simple & REAL Reason For Low Rates

QE is destabilizing the financial system by removing precious repo collateral

What are the true consequences of QE?

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QE vs Repo 2: Why Negative Rates Are Dangerously Important

QE is destabilizing the financial system by removing precious repo collateral

If you were offered an investment that promised a rate of return of -0.70% after two years, would you take it?

Most people would say no, yet that’s what German 2 year bonds are trading for in the market (at time of writing).

Why?

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