Wire: BLOOMBERG News (BN) Date: Apr 7 2011 10:43:04

Repos Mired in Collateral Shortage, Cash Glut: Chart of the Day

By Liz Capo McCormick

April 7 (Bloomberg) -- Money-market rates are lingering
near almost year lows as a reduction in Treasury bill sales and
Federal Reserve debt purchases combine with a Federal Deposit
Insurance Corp. fee change to cause collateral shortages.
The CHART OF THE DAY shows the rate on general collateral
repurchase agreements for government debt and the effective
federal funds rate’s drop further below the top of the Fed’s
target range for overnight loans between banks. The effective
rate is a volume-weighted average of rates on trades by major
brokers published daily by the New York Fed. The repo rate, an
average of trades through 10 a.m. with ICAP Plc, was 0.09 percent
today, compared with 0.02 percent on April 4.
“The current state of the overnight market can be
described as a collateral shortage combined with a cash glut,”
Scott Skyrm, senior vice president and head of repo and money
markets for NewEdge USA LLC in New York, wrote in a note to
clients. “The collateral shortage arose from the Fed’s asset
purchase program combined with the roll-off of the SFP bills.
While the change in the FDIC tax made domestic banks move cash
deposits out of the Fed, with it going into the fed funds and
repo markets.”
The Treasury has cut issuance of Supplementary Financing
Program bills, or SFPs, it sells on behalf of the Fed by $195
billion to help avoid exceeding the U.S. debt limit, removing
securities from use as collateral in the repurchase agreement
market. The FDIC on April 1 implemented a change in the way is
assesses banks’ insurance fees. The new rule, mandated by the
Dodd-Frank financial-regulation overhaul, resulted in insurance
fees being based on a bank’s assets minus tangible equity.
The Fed may have to consider reverse repos to drain
reserves if the funds rate falls further, according to Ray
Stone, principal at Stone & McCarthy Research Associates in
Plainsboro, New Jersey. Fed policy makers have said their
eventual exit from a low-rate policy may include tools beyond
just raising the target rate, such as reverse repos, adjusting
the interest paid on excess bank reserves, utilizing a term
deposit program and selling securities. The Fed is set to
complete $600 billion in Treasury purchases in June.
For Related News and Information:
Chart of the Day story menu: CHART <GO>
Charts home page: GRAPH <GO>
Federal Reserve, repo stories: TNI FED MMK BN <GO>
Stories on money markets worldwide: NI MMK BN <GO>
Most-read news about the Fed: MNI FED <GO>
For Derivatives Stories: TNI DRV <GO>
For Libor rates: BBAM <GO>
--Editors: Dave Liedtka, Paul Cox
To contact the reporter on this story:
Liz Capo McCormick in New York at +1-212-617-7416 or
Emccormick7@bloomberg.net
To contact the editor responsible for this story:
David Liedtka at +1-212-617-8988 or dliedtka@bloomberg.net

[TAGINFO]
NI CHART
NI EXCLUSIVE
NI TOP
NI FUTURES
NI FED
NI CEN
NI ECO
NI DRV

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