Via the excellent Damien Boey at Credit Suisse:
Over the past few days, we have seen chaos in US money markets. Repo rates on general collateral (ie secured borrowing rates) have spiked higher to as high as 10%. The New York Fed has been forced to intervene, conducting a $53 billion overnight “system” repo to inject liquidity into the system. However, the intervention attempt encountered “technical” problems, possibly related to inexperience on the New York Fed’s trading desk. And in any case, once the repo operation had been conducted, rates remained uncomfortably high, suggesting that the intervention was not enough.
It has not just been repo rates that have behaved in a disorderly fashion. We have also see the Fed’s interest rates (the Fed funds rate, and interest on excess reserves) drift towards the top end of their target ranges, and even break out to the upside. Reserves in the system have seemingly become quite scarce in a short space of time.
