Tim Musial, CFA
September 20, 2019
We have received a number of questions regarding developments in the short-term funding markets. Yields for overnight “repos” surged to the 10% area earlier in the week and drew comparisons to market disruptions leading up to the financial crisis in 2007. We see the current episode as a mismatch between the supply and demand for funding that can and has been addressed by overnight lending operations by the Fed. This is very different from the 2007 episode which was a lending market freeze led by a refusal to have certain financial institutions as a counter-party at any price. Left unchecked, the current episode could develop into a fundamental risk to the markets and economy. The Fed action should alleviate funding pressure. What follows is some background information on the repo market, how the funding gap developed, and the path ahead.
Tim Musial is a fixed income portfolio manager for CIBC Private Wealth Management with more than 20 years of experience. His role includes contributing to the firm’s fixed income portfolio strategy, analysis and trading of both taxable and tax-exempt bond investments.
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