Liquidity Scramble: Fed Announces Overnight Repos Every Day Next Week, Introduces Term Repos

Courtesy of ZeroHedge by Tyler Durden

Yesterday we reported that Goldman now expects the Fed to restart Permanent Open Market Operations, i.e., bond purchases, i.e., QE some time in November. For those who missed it, Goldman assumes a roughly $15bn/month rate of permanent OMOs, “enough to support trend growth of the balance sheet plus some additional padding over the first two years to increase the size of the balance sheet by $150bn”, in the process restoring the reserve buffer and eliminating the current need for temporary OMOs.

That strategy would result in balance sheet growth of roughly $180bn/year and net UST purchases by the Fed (the sum of the red and grey bars) of roughly $375bn/year over the next couple of years.

However, assuming Goldman is correct, there would be a little over a month before such POMO returned to permanently increase the size of the Fed’s balance sheet, potentially resulting in a continued liquidity shortage for the next 6 or so weeks.

Which probably explains why moments ago, the Fed surprised market watchers who were expecting the Fed to continue conducting only overnight repos, but announcing that not only would it conduct overnight $75 Billion repos every day from Monday until Thursday, October 10, but it would also introduce 2 week term repos with a total size of “at least $30 billion” for the first time since the financial crisis.

This is what the NY Fed said moments ago in a statement regarding repurchase operations:

In accordance with the Federal Open Market Committee (FOMC) directive issued September 18, 2019, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York will conduct a series of overnight and term repurchase agreement (repo) operations to help maintain the federal funds rate within the target range.

The Desk will offer three 14-day term repo operations for an aggregate amount of at least $30 billion each, as indicated in the schedule below. The Desk also will offer daily overnight repo operations for an aggregate amount of at least $75 billion each, until Thursday, October 10, 2019. Awarded amounts may be less than the amount offered, depending on the total quantity of eligible propositions submitted. Securities eligible as collateral include Treasury, agency debt, and agency mortgage-backed securities. Additional details about the operations will be released each afternoon for the following day’s operation(s).

The proposed schedule of upcoming overnight and term repos is as follows:

What are the implications from the above? There are several, and they are concerning.

First, by expanding the “plumbing” arsenal from just overnight repos to three “at least $30 billion” term repos for at least one week, the Fed is telegraphing that it was expecting the overnight repo oversubscription situation to continue indefinitely, which in turn suggests that the NY Fed is worried the dollar funding shortage may continue, and as such it is expanding its toolbox to release up to at least $90 billion in additional liquidity, which together with the $75 billion in rolled overnight repo, would unlock as much as $165 billion in additional liquidity at the end of next week.

As a reminder, Goldman calculated that the Fed’s restart of POMO would increase the size of the Fed’s balance sheet by $150 billion, which is almost in line with the $165 billion in liquidity that the Fed will unlock in the form of “sterilized” repo operations. In other words, the Fed just confirmed that the reserve shortfall is likely at least $165 billion, and in doing so, it also indicated that a long-term solution will need to be reached, one which almost certainly will validate the prediction that QE/POMO is coming in November.

Second, as noted earlier, whereas overnight repo rates have stabilized, term repo rates remain elevated, especially those terms that capture either quarter or year-end, times when the US financial system traditionally suffers from a material liquidity shortfall: “The term market is still quite choppy,” confirmed Subadra Rajappa, head of rate strategy at Societe Generale in New York. As Bloomberg further adds, for the 10-year note futures contract versus the cheapest-to-deliver Treasury security to Dec. 31, the basis Friday implied a term repo rate of about 2.15%. While that’s down from about 2.40% late Thursday, it remains above the Fed’s target range for its benchmark rate, and is also above today’s G/C overnight repo rate of 1.90%, with Alex Li, head of U.S. rates strategy at Credit Agricole, noting that elevated term rates are a problem because of the quantity of capital at risk.

Third, the reason why the Fed was likely forced to launch term repo, is because while investors have called for measures that will permanently boost reserves, such as POMO/QE, the Fed has so far refrained from embarking on a longer-term solution to ease the funding stress, writes Bloomberg’s Elizabeth Stanton. Specifically, Chair Powell said after Wednesday’s policy decision that he didn’t see “any implications for the broader economy” from the repo crunch, which prompted traders to exit long basis trades – long positions in Treasuries hedged with shorts in futures – which normally perform well when the Fed is cutting rates. “Futures outperformed cash amid the spike in repo and in the wake of an FOMC that could have done more to instill confidence in its attention to the issue,” Credit Suisse strategist Jonathan Cohn said. “The move flushed out significant long basis positioning.”

In short, despite the generous use of the $75 billion overnight repo, it wasn’t enough, and STIR and repo traders were spooked enough to force the Fed to engage in yet another form of liquidity injection, in the form of term repos.

The Fed Will Restart QE In November: This Is How It Will Do It

Courtesy of ZeroHedge by Tyler Durden

One of the reasons for the sharply hawkish response to yesterday’s FOMC meeting – one which saw both the dollar and yields spike – is that as we pointed out yesterday morning, in the hours ahead of Powell’s press conference, Wall Street consensus quickly shifted with many expecting the Fed to announce some form of permanent repo facility or restart of POMO (or QE for those who call a spade a spade) to push reserves back to a level where the funding market is stable. This, as we showed with the following chart, would require some $400 billion in new reserves for the FF-IOER spread to normalize.

To the disappointment of many, Powell did not do that, and instead, the FOMC realigned both interest on excess reserves (IOER) and the reverse repo (RRP) rate lower by 5bp, resulting in 30bp cuts to both rates. Powell also noted during his press conference that the Fed would use temporary open market operations (OMOs) “for the foreseeable future” to address pressures in funding markets.

However, and the reason why stocks shot up just before 3pm ET, is that that’s when Powell added that “it’s possible that we’ll need to resume the organic growth of the balance sheet, earlier than we thought. … We’ll be looking at this carefully in coming days and taking it up at the next meeting” in late October. Said otherwise, the Fed may not have announcer QE4 yesterday, but it will likely announce it in the very near future.

Sure enough, as Goldman wrote in its FOMC post-mortem, “we took this as a fairly strong hint and now expect the Fed to resume trend growth of its balance sheet in November with permanent OMOs. It is possible that the FOMC will take that opportunity to also reach a final decision on possibly shortening the maturity composition of its purchases, which it discussed at its May meeting.”

So what will the Fed’s restart of QE POMO (some analysts, such as Morgan Stanley’s Matt Hornbach are very sensitive not to call the return of POMO as QE even though both are effectively the monetization of US Treasurys and the US budget deficit) look like?

In the chart below, Goldman summarizes its projections of the Fed’s future gross Treasury purchases. The blue bars show reinvestment of maturing UST, which occur via add-on Treasury auctions. The red bars show reinvestment of maturing MBS, which occur via the secondary market.

The grey bars are where things get fun as they show permanent OMOs to support trend growth of the Fed’s balance sheet, which will occur via intervention of the Fed’s markets desk in the secondary market.

Here, similar to Bank of America, Goldman assumes a roughly $15bn/month rate of permanent OMOs, enough to support trend growth of the balance sheet plus some additional padding over the first two years to increase the size of thebalance sheet by $150bn, restoring the reserve buffer and eliminating the current need for temporary OMOs.

That strategy would result in balance sheet growth of roughly $180bn/year and net UST purchases by the Fed (the sum of the red and grey bars) of roughly $375bn/year over the next couple of years.

And so, in just two months QE… pardon the Fed’s open market purchases of Treasuries, will return after a 5 years hiatus. Just don’t call it QE, whatever you do.

Fund Managers Increase Bullish Posture In Gold

Courtesy of Kitco News byAllen Sykora

Monday March 25, 2019 10:59

Kitco News Fund managers sharply increased their bullish positioning in gold futures during the most recent reporting week for data compiled by the Commodity Futures Trading Commission.

Markets seemingly were factoring in a more dovish U.S. Federal Reserve even before policymakers gave markets a dovish surprise for the second straight meeting, analysts said.

During the week-long period to March 19 covered by the report, Comex April gold rose by $8.40 to $1,306.50 an ounce, while May silver dipped 4.1 cents to  $15.372.

Net long or short positioning in the CFTC data reflect the difference between the total number of bullish (long) and bearish (short) contracts. Traders monitor the data to gauge the general mood of speculators, although excessively high or low numbers are viewed by many as signs of overbought or oversold markets that may be ripe for price corrections.

The CFTC’s most recent “disaggregated” report showed that money managers increased their net-long position in gold to 30,475 futures contracts as of March 19 from 17,407 the week before.

The cut-off date for the data was one day ahead of the last meeting of the U.S. Federal Open Market Committee, in which policymakers collectively signaled that there may be no rate hikes in all of 2019.

“Money managers aggressively covered their short gold positions and took out new long exposure as they anticipated the FOMC to sound a dovish tone,” said TD Securities. “The significant increase in length was also driven by the concurrent weakening of the USD [U.S. dollar] and renewed economic growth concerns.

“Indeed, the Fed delivered a significantly more dovish message than the market expected as it eliminated a hike this year. This prompted a relief rally, but no surge into a sustained breakout.”

The disaggregated data showed that money managers cut their gross shorts by 12,452 lots. The number of new longs increased by a modest 616.

“Speculative financial investors are … likely to continue betting on rising gold prices after having already stepped up their net-long positions considerably to [nearly] 30,500 contracts in the week to 19 March, according to the CFTC’s statistics,” said Commerzbank. “In our opinion, this further paves the way for gold as it continues on its upswing.”

Meanwhile, in the case of silver, the funds’ net length increased slightly to 9,716 lots from 9,487 as the amount of fresh buying slightly outpaced the fresh selling. Gross longs rose by 814 lots, while total shorts increased by 585.By Allen Sykora

For Kitco News

10-year Treasury yield hits lowest since October 2016 amid geopolitical jitters

Courtesy of MarketWatch

By Sunny Ho Published: Aug 12, 2019 4:12 p.m. ET

Treasury prices rose Monday, pushing yields lower, as protests in Hong Kong underlined geopolitical worries that have weighed on risk assets.

How are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -5.68% tumbled 9.1 basis points to 1.640%, its lowest level since October 2016, while the two-year note yield TMUBMUSD02Y, -2.98% was down 5.1 basis points to 1.578%. The 30-year bond yield TMUBMUSD30Y, -5.61% retreated 11.1 basis points to 2.130%, its lowest level since July 2016. The longer-dated maturity remains only three basis points away from its all-time low.

Debt prices move in the opposite direction of yields.

What’s driving Treasurys?

Demand for safe assets like Treasurys continued to pull global government bond yields lower as investors juggled simmering trade tensions between the U.S. and China, U.K.’s grind toward a no-deal Brexit, and the steady drip of anemic global economic data. The worsening growth backdrop has, in turn, raised expectations that the Federal Reserve will cut rates again in September, following a quarter-point cut in July.

Thousands of protesters rushed into Hong Kong International Airport on Monday, prompting the airport authority to cancel all outbound flights. The protests added to the litany of factors that have bruised investor confidence in recent weeks.

U.S. stocks logged their second straight decline as the Dow Jones Industrial Average DJIA, -1.48% recorded a 1.5% loss. Asian equities, however, showed a more mixed picture. Hong Kong’s Hang Seng Index HSI, -0.44% ended lower even as China’s Shanghai Composite SHCOMP, +1.45%   posted gains.

What did market participants say?

“There’s no real evidence out against bonds right now,” said Kathryn Kaminski, a portfolio manager at AlphaSimplex, in an interview with MarketWatch. “There’s been a huge flight to safety across many asset classes since last week,” she said.

“You might as well thrown out the fundamentals for the time being, because as long as the globe is this unsettled, money will likely continue to pour into dollar-denominated assets like Treasuries. It almost doesn’t matter whether the data is strong or weak, that earnings continue to surprise to the upside, or that things are probably better than they seem,” wrote Kevin Giddis, head of fixed income at Raymond James.

Even before the stock market’s latest roller-coaster ride, millions of recession-scarred Americans were losing sleep

The escalation in trade and tariff tensions earlier this month appears to have shaken consumers’ confidence

Courtesy of MarketWatch

By Quentin Fottrell Published: Aug 10, 2019 9:49 a.m. ET

How are you sleeping lately?

The next recession will likely begin in 2020, according to the result of a recent panel of more than 100 real-estate economists polled by real-estate site ZillowZ, +0.43%. Half of those surveyed said the next recession will start in 2020, with nearly one in five identifying the third quarter as the likely beginning. Another 35% of experts think the current expansion will end in 2021.

The U.S. housing market is already heading into a potential correction.—Skylar Olsen, Zillow’s director of economic research

“Housing slowdowns have been a major component, if not catalyst, for economic recessions in the past, but that won’t be the case the next time around, primarily because housing will have worked out its kinks ahead of time,” Skylar Olsen, Zillow’s director of economic research, said.

“Housing markets across the country are already heading into a potential correction a solid year before the overall economy is expected to experience the same,” he added. “The current housing slowdown is in some ways a return to balance that will help increase the resiliency of the housing market when the next recession does arrive.”

Read MarketWatch’s Moneyist advice column on the etiquette and ethics of your financial affairs and, this week: ‘ My children’s stepmother won’t return family heirlooms and gifts they gave their late father — how can we get them back?’

Morgan Stanley’s MS, -2.75%  chief U.S. economist, Ellen Zentner, recently said there’s a 20% chance of recession in the year ahead. “For now, the path to the bear case of a U.S. recession is still narrow, but not unrealistic,” she said. And that was before the latest drop in the Dow Jones Industrial Index DJIA, -1.48%  and S&P 500 SPX, -1.22% as U.S.-China trade fight intensifies.

However, Zentner added, “If trade tensions escalate further, our economists see the direct impact of tariffs interacting with the indirect effects of tighter financial conditions and other spill-overs, potentially leading consumers to retrench.”

The escalation in trade and tariff tensions appears to have shaken consumers’ confidence.

Some Americans have already been feeling uneasy. The escalation in trade and tariff tensions appears to have shaken consumers’ confidence in recent months. Consumer confidence fell to a two-year low in June of 124.3 before rebounding to 135.7, the highest level since November, according to the Conference Board. The latest stock-market drop, if prolonged, could flatten that bounce.

Many people are living with wildly fluctuating income, a recent report from the Board of Governors of the Federal Reserve System said. “Volatile income and low savings can turn common experiences — such as waiting a few days for a bank deposit to be available — into a problem.”

Despite unemployment hitting a 49-year low, plus low interest rates and inflation, people are feeling skittish. “A major trade war between the U.S. and China represents our greatest economic risk,” said Lynn Reaser, chief economist of the Controller’s Council of Economic Advisors.

Despite unemployment hitting a 49-year low, people are feeling skittish.

All of these worries are taking their toll. 78% of adults are losing sleep over work, relationships, retirement and other worries, according to a study released Thursday by personal-finance site Over half (56%) of Americans are lying awake at night worrying about money.

So what’s preventing people getting enough shut eye? They’re tossing and turning over retirement (24%), health care and/or insurance bills (22%), the ability to pay credit-card debt (18%), mortgage/rent payments (18%), educational expenses (11% versus 26%) and stock-market volatility (5%). The site polled over 2,500 people.

The good news: A higher number of U.S. adults (62%) were losing sleep over money three years ago, and more people were lying awake over retirement (39%), health care and/or insurance bills (29%), mortgage/rent payments (26%), educational expenses (11%) and stock-market volatility (5%). But are sleepless Americans stuck between a rock (the last recession) and a hard place (the longest economic expansion in U.S. history)?

Millions of American believe it can’t last for much longer and fear a downturn is coming: 40% of people in a separate poll by that site say they feel the next recession has already begun or will begin within the next 12 months. These worries, however, are divided along political lines. Democratic Americans are almost twice as likely as Republican Americans to believe it’s already begun.

Jesse Colombo, analyst at Clarity Financial, cautioned readers of his Real Investment Advice column not to underestimate the severity of the next recession. “Virtually everyone is underestimating the tremendous economic risks that have built up globally during the past decade of extremely stimulative monetary policies,” he wrote.

Also see: Scarred by the Great Recession, Americans see storm clouds on the horizon

Other signs that people are feeling under pressure and losing sleep. They’re working longer hours to keep up. Nearly half — 45% — of U.S. workers require a side hustle to make ends meet, and even middle-aged workers are feeling the pinch. This includes 48% of millennials, 39% of Generation Xers and 28% baby boomers.

The good news: More people were losing sleep over money three years ago.

The expected benefits of a strong economy has not helped everyone keep up with their daily expenses. Wage growth showed signs of an upswing earlier this year, but disappointed in May. Wages increased just 3.1% on the year in May, not including inflation, slowing from 3.2% the previous month.

But there are global issues that may be far more troubling. After a decade-long economic expansion and stock market growth, some economists say it’s only a matter of time before there’s another downturn. Oxford Economics, a U.K.-based forecasting firm, predicts that fallout from the next recession could trigger a 30% drop in the S&P 500 SPX, -1.22%.

According to the New York Fed’s yield curve-based recession probability model, there is a 27% probability of a U.S. recession in the next 12 months. “The last time that recession odds were the same as they are now was in early 2007, which was shortly before the Great Recession officially started in December 2007,” Colombo added.

‘Everyone should be terrified of the coming recession.’—Jesse Colombo, analyst at Clarity Financial

However, he sees a 64% likelihood of a recession within the next year. “The New York Fed’s recession probability model has underestimated the probability of recessions in the past three decades because it is skewed by the anomalous recessions of the early 1980s,” he added. The New York Fed’s model is based on the Treasury yield curve, which is based on U.S. interest rates.

And, Colombo adds, that model was skewed by a then-Federal Reserve Chairman Paul Volcker’s “unusually aggressive interest rate hikes that were meant to ‘break the back of inflation.’ Looking at the New York Fed’s recession probability model data after 1985 gives more accurate estimates of recession probabilities in the past three decades, he said.

He has a long list of “new bubbles” that people should be losing sleep over. They include global debt, China, Hong Kong, Singapore, the art market, U.S. stocks, U.S. household wealth, corporate debt, leveraged loans, U.S. student loans (currently topping $1.5 trillion), U.S. auto loans, tech startups, global skyscraper construction, U.S. commercial real estate “and U.S. housing once again.”

“I believe that the coming recession is likely to be caused by — and will contribute to — the bursting of those bubbles,” he said. In other words, Colombo argues that Americans have plenty of reasons to lie awake at night wondering when America’s decade-long expansion will finally come to an end. “Everyone should be terrified of the coming recession,” he added.

LBMA Press Release

LBMA is the international trade association that represents the wholesale over-the-counter market for gold and silver bullion. LBMA undertakes many activities on behalf of its members and the wider market, setting industry standards including good delivery and refining standards, ownership of the precious metal benchmark prices as well as serving as a point of contact for the regulatory authorities. For more information, please visit

1 August, 2019 Clearing Statistics Daily Averages - June 2019

Clearing Statistics Daily Averages - June 2019

The volume of ounces transferred in June increased by 30.4% month on month (m/m) to 24.2 million ounces, its highest volume for 18 months. The corresponding value increased by 38% to $32.9 billion. There were 3,997 transfers in June, 34.8% higher m/m, with the clearers settling on average 6,065 ounces per transfer, 3.3% lower m/m.

The volume of ounces transferred in June increased by 37.6% to 291.4 million ounces, with the corresponding value 37.6% higher at $4.37 billion. There were 1,329 transfers in June, up 35.9% from the previous month, with the clearers settling on average 219,262 ounces per transfer, 1.3% higher m/m. The gold / silver price ratio averaged 90.66 in June, the highest ratio for 26 years. Clearing statistics are published one month in arrears

Download PDF version of complete press release below 

Ron Paul on Fed Interest Rate Cut


Campaign for Liberty Chairman Ron Paul issued the following statement regarding the Federal Reserve’s announcement that it will be reducing interest rates for the first time in a decade:

“The Federal Reserve’s reduction of its benchmark interest rate from 2.25% to 2% is a textbook illustration of a popular definition of insanity: taking the same actions over and over again and expecting different results. Since the stock market meltdown of 2008, the Fed has unsuccessfully tried to pump up the economy via historic low interest rates and Quantitative Easing. As anyone except those who believe the government’s manipulated statistics knows, these policies failed to revive the economy. Instead of acknowledging its mistakes, the Fed is resorting to another rate cut in a desperate—and what will prove futile—attempt to forestall another central bank-created recession, albeit one exacerbated by President Trump’s destructive trade war.

The bright side of the Fed’s failure is that it will increase public interest in Austrian Economics and alternatives to the Fed, such as precious metals and crypto currencies, and auditing and ending the Fed. My Campaign for Liberty organization will continue to mobilize pro-liberty Americans to pass Audit the Fed legislation at the federal level and increase the number of states that have restored gold and silver as legal tender.”


America’s largest bank sounds alarm in face of skyrocketing debt, rise of China

Courtesy of Infowars by Jamie White | JULY 24, 2019


JPMorgan’s Private Bank released a statement to investors warning that not only could the dollar lose its world reserve currency status, but could also “lose its status as the world’s dominant currency.”

In its July investment strategy report, America’s largest bank warned that the dollar’s “exorbitant privilege” as the world’s reserve currency could be “coming to an end.”

“The U.S. dollar (USD) has been the world’s dominant reserve currency for almost a century. As such, many investors today, even outside the United States, have built and become comfortable with sizable USD overweights in their portfolios,” wrote JP Morgan’s Commodities and Rates Strategist Craig Cohen.

“However, we believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments.”

The report goes on to say that the downfall of the dollar as the world reserve currency is inevitable given historical trends, and suggests allocating assets to other markets, particularly Asia.

“There is nothing to suggest that the dollar dominance should remain in perpetuity. In fact, the dominant international currency has changed many times throughout history going back thousands of years as the world’s economic center has shifted.”

In fact, JP Morgan’s Chairman of Market and Investment Strategy Michael Cemblast created a graph in 2012 breaking down the world reserve currencies since the 15th century in an effort to highlight the inevitability of the dollar’s decline as the global currency.

Notably, it seems to indicate the U.S. Dollar losing its status sometime in the early 21st century.

The report comes as President Trump and Congress agreed on a bipartisan two-year $2.7 trillion spending package that does nothing to address the bloated spending or national debt, and totally suspends the borrowing limit.

Economist Peter Schiff noted that the budget deal flies in the face of conservative principles of limited government and fiscal responsibility.

Trump finally managed to be the greatest at something. He has managed to negotiate the greatest budget deal disaster in history. No president has signed onto a worse budget deal than this. He sold it to Republicans as a victory. It’s a loss for Republicans and the Republic!

— Peter Schiff (@PeterSchiff) July 23, 2019

Additionally, central banks around the world, including China and Russia, hit a gold ownership-high in April, with gold purchases spiking by 75% in the last year alone to hedge against a volatile dollar.

As long as the dollar is backed by nothing but the Federal Reserve System of credit, countries around the world will continue to hedge against the dollar while the $21 trillion U.S. national debt keeps ticking up.

Donald Trump Announces ‘Real Compromise’ Budget Deal with Nancy Pelosi

Courtesy of Associated Press by Charlie Spiering

Budget Squad

President Donald Trump announced Monday evening that Republican and Democrat leaders in Congress had agreed to a budget deal that also raised the debt limit.

“I am pleased to announce that a deal has been struck with Senate Majority Leader Mitch McConnell, Senate Minority Leader Chuck Schumer, Speaker of the House Nancy Pelosi, and House Minority Leader Kevin McCarthy – on a two-year Budget and Debt Ceiling,” Trump wrote on Twitter.

The deal would raise spending by $320 billion, according to reports, and suspend the debt ceiling until July 2021 — well after the 2020 election.

The president said that the deal, reached days before members of Congress leave Washington for their August vacation, had “no poison pills.” The deal also means Democrats will not try to block Trump from transferring federal funding to help build the wall on the Southern border

“This was a real compromise in order to give another big victory to our Great Military and Vets!” he wrote.

The bill still has to pass both houses of Congress this week in order to fund the government before the scheduled August recess before the president can sign it.

Pelosi and Schumer celebrated the agreement in a joint statement on Monday, praising the end of the sequester cuts set when Republicans were in the House of Representatives.

“We are pleased that the Administration has finally agreed to join Democrats in ending these devastating cuts,” they wrote.

In exchange for funding the military, Democrats won over $100 billion in domestic spending priorities.

“The House will now move swiftly to bring the budget caps and debt ceiling agreement legislation to the Floor so that it can be sent to the President’s desk as soon as possible,” the statement read.