Source: https://www.linkedin.com/feed/update/urn%3Ali%3Ashare%3A6773408012922085376
US Overnight Rates & Negative Borrowing Repo Rates: 5 reasons why negative repo rates are different than the last overnight-funding crisis: When overnight-lending “repo” rates suddenly spiked as high as 9% in Sep. 2019 raising concerns on Wall Street, Fed had to step in to avoid a potential crisis in a key financing cog of global finance. Now, some 17 months later, pretty much the exact opposite thing has happened. Rates charged to borrowers who want short-term funding, by pledging U.S. Treasuries and similar safe-haven assets as collateral for cash, dipped into negative territory heading into Thursday.
1. Right now the issue is negative-borrowing repo rates, as a result of a lot of cash and fewer available short-term Treasury securities to pledge, thus the downward drift in borrowing rates to below zero.
2. Another key factor for today’s repo market is securities scarcity. Net T-bill supply is expected to be negative in the first and second quarters of this year.
3. The bottom line is that more cash is chasing fewer securities, causing repo rates to briefly go negative.
4. Many people right now want to short the Treasury market
5. Focus on raising, not lowering repo rates.
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