That would be the year of the sudden Sept. 16-17 spike in the repo rate from 2% to 10%, forcing the “QE-5” bailout less than three weeks later. Reuters reports that the federal funds rate, pulled upward slowly (so far) by the repo rate, is at 4.05%; it has escaped the Federal Reserve’s designated range of 3.75-4.00. They derive from this, that banks’ reserves (held at the Fed) are low and under pressure (no longer what the Fed calls “ample"), presumably due to recent losses from consumer debt companies and big tech firms.
And they point out that due to the “basis trade” in the Treasury market, “hedge funds’ long positions swelled by nearly $400 billion in the first six months of the year to $2.4 trillion. Their use of repo funding also increased by nearly $700 billion this year and is more than twice as large as in 2019.” Note, these are hedge fund bets that the interest rates on short-term Treasury bills will go down, lowered by the Federal Reserve’s Open Market Committee. And if the FOMC doesn’t, or can’t…?
Note also that Glass-Steagall would prohibit the big banks’ loans to the hedge funds, the debt leverage which makes the “basis trade” possible in the first place.
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By Independent News Roundup