Analyst Pin-board: US Repo Rates: The Plumbing Of The Financial System
Last week the NY Federal Reserve had to inject around $ 300 bn into the financial system to restore ‘calm’ after overnight borrowing costs surged from 2 to over 3 per cent (see Figure 1) following the central bank decision to cut its Fed-funds rate by 25 bps. Overnight borrowing costs are a key funding mechanism for banks and hedge funds. Is it something investors should worry about? Reigniting nightmares of a systemic funding chaos a la 2008? Can this shake consumer confidence in an economy that has become so dependent on consumption? Difficult to answer at this junction but it needs to be watched closely.
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