BIS Quarterly Review (December 2019) and Repo Markets

The December 2019 BIS Quarterly Review is out and it includes some very interesting articles.

There is one on the evolution of OTC interest rate markets.  Given these are an indicator of market volatility, the research is important, because the turnover of interest rate derivatives has increased for a variety of reasons; some of which are the changing structure of the market.

Collateral is king in the euro repo market.  Repo markets provide liquidity, but the euro repo market has seen activity which indicates investors are seeking particular securities rather than just liquidity and the availability and price of those particular securities has become a factor in the euro repo market.

One article receiving a lot of attention is one on the September stress in the U.S. dollar repo market
in which the authors ascribe the problems to the need of hedge founds for collateral and only the four largest banks providing the loan liquidity.  Several economists have commented on this including Frances Coppola.  There are more factors, including some structural process problems, than those two involved in the U.S. repo September stress, but I have not had the time to cover all the research.  The Fed has actively responded to the liquidity needs as can be seen here if you look at the one year version and the overnight historical chart and changing the FROM Date to Sept 1, 2019. 

Towards the end of September, October, and November, in an Overnight Bank Funding Historical Data search with a 9/1/2019 beginning date, the volume peaked each month at $183 billion.

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