🚨FED just injected $11B of liquidity #1

👉 TL;DR: interest rate cuts & QE incoming

$11B is insignificant - but it's an early sign: there is a lack of liquidity/cash

if undressed, will lead to systemic defaults. existing debt needs to be refinanced

the fix/what's next? see TL;DR

SRF provides daily $500B liquidity limit for overnight repo operations

a rate is published daily & dealers lend borrow against US bonds

dealers/market makers use SRF when the rate in the open repo market gets too high

SRF = Standing Repo Facility

with SRF the FED sets an upper limit on repo market rates

most of the collateral is US Treasury bonds

this exerts downward pressure on bond yields - by preventing sell-offs

in practice, FED's SRF is used when there is a scarcity of liquidity/cash

the market has US bonds & needs cash, so lenders increase rates

SRF sets a daily rate. if that rate is smaller than in the smaller repo market - the dealers instead borrow USD directly from the FED

current SRF minimum bid rate is 4.5%

that's the annualized rate that the federal reserve sets requires dor overnight repo loans via Standing Repo Facility

dealers/market makers can borrow cash against US treasuries for 1 day at ≈4.5% annualized directly from the FED

not only US treasuries are accepted as collateral for SRF

dealers/market makers can use:

1️⃣ US. Treasuries
2️⃣ agency debt
3️⃣ agency mortgage-backed securities

agency debt instruments aren't issued by US Treasury, but by government sponsored enterprises (GSE) & federal agencies