Manufacturing Demand

Published on March 11, 2024 by Premium

Tweaking regulations to encourage more bank involvement would be an easy private sector solution to financing the anticipated surge in Treasury issuance. While Fed purchases are the ultimate backstop to any market, a modest adjustment to Basel III leverage calculations would save them the trouble. Capitalizing on the deep unpopularity of proposed regulations, ISDA is recommending a permanent exemption of Treasuries from Basel III leverage calculations. This simple change would boost liquidity across markets and

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The Elasticity of 5 Basis Points

Published on June 21, 2021 by Free

Large money market investors will move billions for even a basis point. A 5bps increase to the RRP offering rate led to a $200b+ surge in participation, but there is a wrinkle to the story. The bulk of the increase likely came from Government Sponsored Enterprises (“GSEs”) who were leaving hundreds of billions at 0% in their Fed account, so it was not an incremental flow from the private sector. That being said, the 5bps

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The Gravitational Pull of Zero

Published on June 7, 2021 by Free

GSIB High Quality Liquidity Asset (“HQLA”) portfolios are a mechanism through which low rates in the front-end are exerting downward pressure on longer dated yields. Fed QE has filled bank balance sheets with low yielding reserves, and deprived non-banks of any yield at all in the front-end. An unconstrained investor can escape 0% yields by moving along the risk curve to Bitcoin, but GSIBs are confined by Basel III to the most prosaic investments. GSIBs

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Why Are Banks Issuing So Much Debt?

Published on April 26, 2021 by Free

U.S. GSIBs recently issued a torrent of debt, with record breaking issuance sizes from JPM and then BAC. Yet, at the same time we know that the banking system has too much liquidity, and that banks are pushing out poor quality deposits to money market funds, who ultimately pour the excess liquidity down the ON RRP drain. The two behaviors can be reconciled by understanding the very strong regulatory incentives put on GSIBs to issue

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