EC Right On Cue, Low Money Rates Are Not What You Might Think

The idea that actual transactions gives you a better sense of market conditions isn’t always a logical assumption. On some days, the funding trades that aren’t made are the more relevant bits of information.

Thus, when you see rates like fed funds or repo start to fall in a crisis situation, it may instead be a signal that things are really going wrong in the shadows.

Rather than suggesting the Fed is gaining ground on the crisis with its balance sheet expansions and huge increase in bank reserves, these low rates actually indicate the opposite. The central bank is, like before, falling further and further behind no matter how big the LSAP, “repo” operation, or what other ’08 program central bankers dust off and resurrect. 

The central bank hasn’t found the “magic number” for QE and whatnot, rather the market knows that QE is little more than a puppet show. As I wrote before, all last year, money now…or else.

That is what has to change, effective elasticity, given the central bank is not right now in the money business. In a strange twist many people aren’t prepared for and haven’t been properly equipped to grasp, that’s just what these low rates are signaling. Like GFC1, more and more of GFC2.

UPDATE for 3-23 close: DTCC puts the GC repo (UST) rate in today’s trading lower still, down to 6.8 bps. Is that because things are getting better, the liquidations dissipating?

1 2 3 4
View single page >> |

Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
Moon Kil Woong 2 months ago Contributor's comment

Very true, banks are not interested in lending unless you are willing to pay credit card rates. This has been true for quite some time and is why banks sell your home loan as fast as they can to Fannie Mae, Freddie Mac, or anyone who will take it as fast as they can. The risk is not adequate to the rate and is why lowering rates that are already low don't help much in creating more monetary expansion.

Actually, if the Federal reserve found a way to force down credit card rates it may encourage more spending on the lower end of the income bracket because its clear that the upper end of the income bracket isn't affected much at all to borrow anymore.

Terrence Howard 2 months ago Member's comment

That's a good point I hadn't though of.