by Mish Shedlock, The Maven:
Overnight lending rates spiked as high as 10% in the past few week.The Fed blamed it all on end-of-quarter financing needs.
The Fed then made some emergency “overnight” and “short-term” repos to get through the end-of-the-quarter.
Following the emergency actions to suppress interest rate spikes, Philadelphia Fed President Patrick Harker explained “This is not QE4. This is not a monetary policy tool.”
WTH is It?
If it’s neither QE nor a “monetary policy tool”, then what the hell is it?
Looks Like QE, Stinks Like QE
The Fed’s balance sheet is growing again.
Harker explained QE growth will be “organic”.
Actions prove otherwise
Is the Third Quarter Over?
Inquiring minds may be asking “Is the third quarter over?”
That seems to be a simple question, but let’s check a calendar to be sure.
Yep. It appears the third quarter is over.
So let’s check on those Repo actions to get us though the end-of-quarter financing needs.
Fed Repo Actions Overnight and Term
The overnight operations replace each other. One needs to add up what does expire.
I come up with 30+60+60+75 = $195 billion.
Note that end-of-quarter needs stretch all the way until October 11. But let’s not stop there. Let’s investigate all scheduled Repo operations.
Scheduled Overnight and Term Repos
It appears we have new definitions of “overnight” and “end-of-quarter”.
End of third-quarter needs stretch all the way until November 12. Fancy that.
The $30 billion term repo that expires on October 8 (first repo chart) will be replaced by a $45 billion term repo on October 8 (second repo chart)
But also note that expiring a total of $120 billion in repos will expire October 10 and 11. Those will be replaced by only $90 billion in new repos on those dates.
If it played out exactly that way there would be a small $15 term repo reduction on October 11.
However, we also need to add in $75 billion “overnight” every day from October 7 through November 4..
At Least Kicker
Please note the “At Least” kicker. The first chart has an explicit dollar amount.
All items in the second chart say “at least”.
At Least $250 Billion Through October 17
The overlapping term repos between October 8 through October 15 all expire no sooner than October 17.
I count 45+45+45+35 in term repos + $75 billion in continual “overnight” repos = $250 billion (At Least)!