Reuters: Repo participants are getting cautious

Reuters news service reports some traders believe another run on repo has begun. Meanwhile, data tracked by RepoWatch shows a mild tightening.

From an August 30 article by Reuters reporter Karen Brettell:

Pockets of the fixed income and money markets are starting to reflect concern that recent volatility will extend past August, and that growing risk aversion may again roil banks and funding markets.

One sign of worry is the increasing reluctance of banks to use their balance sheets to facilitate trades, which has hit sectors from corporate bonds to the short-term repurchase market, where there is $1.6 trillion (980.8 billion pound) in triparty loans.

For example, banks have reduced activity in the intra-dealer Treasury repurchase agreement market by 63 percent since the end of June, according to Barclays Capital.

To some, this spreading risk aversion suggests that an autumn of troubling headlines could again spark a freeze like the 2008 crisis.

Problems are centered in Europe, reports Brettell.

Thanks to Reuters for watching repo markets and to University of Oregon professor Mark Thoma for including the Reuter’s story in his September 1 Economist’s View blog.

The publicly available data that RepoWatch tracks shows a mild tightening. For example:

Primary dealer volume is up slightly, compared to the end of June, but overnight repos rose from 63 percent to 68 percent during that period, which is the time comparison Reuters uses. The rising preference for overnight repos suggests risk aversion is growing, as Reuters describes.

-Meanwhile, rates for repos collateralized with government securities are rising modestly, as reported by the Depository Trust & Clearing Corp.



2 responses to “Reuters: Repo participants are getting cautious

  1. If the Fed is contemplating more long term debt acquisition culd some form of commercial mortgage backed security tied to residential rental pools create a collateral base similar to MBS collateral in the repo market.
    Would this create capital flows into main street economies or would this cause another repo inflated real estate bublBe?

  2. If Fed is contemplating more long term debt acquisition could some form of newly engineered financial product (similar to commercial mortgage backed securities) tied to pools and tranches created from “cash flow” tranching of current foreclosure inventory(which is effectively trapped by its inability to transfer legal title) being held in Trust and turned into cash flowing rentals (and tranched) cause a new bubble?
    Or would this effectively use the repo market to drive investment capital back into productive use and jump start a sustainable economy?

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