🔴Each day Reverse Repo Replace 07/30: $1,039.394B

Why is that this dangerous?

This RRP might imply loads of issues. I am going to record a couple of eventualities.

  1. Market Shy

Everybody on wall avenue is likely to be attempting to maintain their cash out of the fairness markets as a result of the advantage of investing in fairness is lower than the chance. They’re shifting into the mounted revenue markets (like bonds) and reverse repo as a result of there’s much less threat there. That is regarding, since yields on bonds do not even beat inflation proper now, and the reverse repo market presents shit returns on funding; the chance of fairness must be very excessive (reminiscent of an impending collapse) for them to do that.

2) Asset Scarcity

Monetary establishments are exchanging these billions in {dollars} for billions in treasury bonds as a result of they should steadiness their property in opposition to their liabilities. If an establishment has $1000 in liabilities, they want $1000 in property. US Treasury Bonds are the property of selection, and we expect that rising losses on a brief GME place is the legal responsibility that is inflicting these establishments to continuously want increasingly more bonds.

There’s in all probability a scarcity within the bond market (evidenced by continuously dropping yields – bond demand go up = bond yield go down). This scarcity within the bond market is doubtlessly forcing cash market makers to show to the Federal Reserve to satisfy the continuously rising demand for treasuries. Demand for treasury bonds might be additionally being accelerated by the decay of bonds based mostly on mortgage loans. A collapse of the housing market is one other prediction of our thesis, and if it comes true then a mortgage-backed safety whose worth is derived from the housing market will instantly be price quite a bit much less if its price something in any respect.

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