Courtesy of Nattering Naybob.
From Rhino: “The bill rate has become intertwined with the GC repo rate; the repo rate previously trading instead in proximity to 1-month LIBOR until the big bond selloff in mid-November (“dollar”).“
Wonder why. (Sarcastic) RHINO means Rate Hike In Name Only. Speaking of rates, IOER (interest on excess reserves) is Fed guaranteed pay to let excess reserves lay fallow. In December, the Fed raised their Fed Funds rate.
Who cares what Fed funds is at, as that transaction quantity is dwarfed by repo. Along those lines, Libor is unsecured, repo is not. Looking at a graph of increasing repo fails (or what is no longer acceptable as collateral in those secured clearing transactions) paints a picture worth a thousand words.
Hence the price of loan funds, in all its various forms, secured or unsecured, rises and shall continue to do so. There is a dearth of moneyness to keep the wheels lubricated. In such times, when the cost of loan funds rises, anything with acceptable “moneyness” gets squeezed up in value concomitant.
Under such conditions the price of loan funds can influence the price of money, but never to be conflated as one and the same. Interest rates are never the price of money, they are the price of loan funds. The price of money is reflected in FX exchange pairs and currency indexes.
Coming back to IOER, this form of remuneration on reserves disintermediates banks from being in the lending business and has a deleterious economic effect by arresting transactional velocity. Just in case you missed it….
The Board of Governors of the Federal Reserve System voted unanimously to raise the interest rate paid on required and excess reserve balances to 0.75 percent, effective December 15, 2016.
