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Saturday, October 12, 2019

The US FED will start to purchase $60b T-bills per month in mid October 2019.

https://finance.yahoo.com/news/1-fed-buy-60-bln-153937503.html

The overnight RRP had been in chaos since September 2019 and spiked above its set range.

Why is this happening?

First of all, overnight RRP is a short-term agreement to purchase securities in order to sell back the same securities the next day (overnight) at a profit (interest earned).

When the overnight RRP spikes, it means that the buyers/investors do not have faith in the securities being offered as collaterals or there are not enough buyers/investors around in the market.

Whatever is the case, this spike denotes a bad economic or financial situation that can spill over to other financial assets and destabilize the financial market.  Therefore, the US government has to step in to stabilize the short-term situation by purchasing the T-bills to show that the securities offered are not non-performing collateralized loans.

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Eric Ho said...

https://sg.finance.yahoo.com/news/u-banks-reluctance-lend-cash-070331477.html

The repo spiked because the US banks refused to lend money in exchange for pledged securities. Why did the US banks refuse to lend money?

Were they short of money or they didn't have faith in the pledged securities?