These things are coming almost too fast to keep up with. My TPC column, which will be published after I schedule this post, though not necessarily before the post hits, is called “Repo-ing the Economy.” It’s more about the fun and games of the Fed’s dark sorcery. Now, this.
Some investors are concerned that recent turmoil in a key short-term cash market where banks borrow to fund operations could exacerbate difficulties trading bonds.
Spikes in the cost of overnight loans using repurchase agreements, or repos, could hit bond trading in two ways, investors and analysts said. Rising repo rates make it more expensive for securities dealers to borrow money and to hold government bonds—actions they take frequently to facilitate client trades and manage their risks.
In the repo market, where banks and money-market mutual funds typically lend cash for periods as short as one night in exchange for safe collateral such as Treasurys, rates surged as high as 10% last month from about 2.25% amid an unexpected shortage of available cash in the financial system.
Couple this with what’s going on with China’s cash crash and you get the feeling that a global financial meltdown is upon us – now, not in the future. Bank run, anyone?