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2021-07-05

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Zoltan Pozsar Sees a $1 Trillion Problem for Money Markets Ahead

An explosive mix of excess cash sloshing in the financial system, ongoing quantitative easing and a

Zoltan Pozsar Sees a $1 Trillion Problem for Money Markets Ahead

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At issue is the amount of money that could flow into the Federal Reserve’s reverse repurchase facility (RRP)&nbsp;as money market funds and banks reshuffle their existing holdings to take advantage of arecent increase in interest.</p>\n<p>The Fed surprised the market last month by tweaking interest paid on the RRP from nothing to 5 basis points, a move that’s been luring billions of dollars into a facility intended to help the central bank keep a floor under interest rates. Already Pozsar estimates that usage of the facility has&nbsp;jumped by $300 billionsince the RRP rate hike as money market funds dump lower-yielding T-bills in favor of parking cash at the RRP.</p>\n<p>Now he sees the possibility of more money flowing in:</p>\n<blockquote>\n “The first chart on page six shows the results for the largest fund complexes – as of May 31st, the largest money funds had capacity to rotate out of $1 trillion of bills and place that much more money in the o/n RRP facility – that’s a lot. The second chart on page six shows that the bill holdings of these money funds will mature by August 31st – that’s a lot in a short period of time. Not included in these charts are second-tier money funds that hold $350 billion in bills, some $300 billion of which they have capacity to replace with o/n RRPs. \n <b>Thus, we’re looking at $1.3 trillion of flows from bills into RRPs by the end of August!”</b>\n <img src=\"https://static.tigerbbs.com/730a03147ce0ec7569f78f032ee12376\" tg-width=\"1000\" tg-height=\"572\" referrerpolicy=\"no-referrer\">Source: Zoltan Pozsar/Credit Suisse\n</blockquote>\n<p>In other words, Pozsar argues that money market funds are incentivized to rotate out of Treasury bills and into the newly-lucrative RRP, potentially leaving billions of dollars worth of bills that the market will need to absorb, thereby draining reserves from the banking system.</p>\n<p>So far that hasn’t been too much of a problem, with shorter-term investors keen to snap up bills ahead of an expected crunch in supply. A reinstatement of the debt ceiling, which was suspended during the depths of the pandemic, is expected to hit supply as the Treasury will have to slash&nbsp;its balance at the Fed to $400 billion before July 31.</p>\n<p>But ongoing QE from the Fed ($250 billion in the next two months) will leave some $400 billion that still needs to be drained, according to Pozsar’s estimates. That could lead tomarket weirdnessas banks retool their balance sheets:</p>\n<blockquote>\n $400 billion sterilized is a lot, but nothing relative to the $2.25 trillion in reserves added during the pandemic – we shouldn’t really hyperventilate about all this in the aggregate. But we don’t like to look at things in the aggregate.\n</blockquote>\n<blockquote>\n If institutions spend $400 billion of non-operating deposits on Treasury bills, which banks will lose those deposits? Probably those that grew the most during the pandemic, which were J.P. Morgan and Bank of America, where the sum of brokered and non-operating deposits grew by $200 and $125 billion, respectively (see charts on page 3 and 4). Maybe these pandemic deposits are just as sticky as pre-pandemic deposits, but maybe not. We’ll just have to see. \n <b>But if these deposits go, the J.P. Morgan portfolio will lend fewer reserves in the FX swap market, and Bank of America will have less excess reserves to fund its recent, “programmatic” purchases of duration. The liquidity posture of the lender of next-to-last-resort and the buyer-of-last resort will thus change. None of this is an issue for the banks in discussion, but it could lead to events in the markets – FX swaps, long-dated Treasuries, and MBS – that they backstop</b>… Bank of America enters this period with its reserves at the lower end of their post pandemic range.”\n <img src=\"https://static.tigerbbs.com/96d2822f5e5d1321bd1376207843ed0b\" tg-width=\"1000\" tg-height=\"577\" referrerpolicy=\"no-referrer\">Source: Credit Suisse/Zoltan Pozsar\n</blockquote>\n<p>Pozsar’s promised more info on the market effects on Tuesday.</p>","source":"lsy1584095487587","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Zoltan Pozsar Sees a $1 Trillion Problem for Money Markets Ahead</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; 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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nZoltan Pozsar Sees a $1 Trillion Problem for Money Markets Ahead\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-07-05 13:33 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.bloomberg.com/news/articles/2021-07-05/zoltan-pozsar-sees-a-1-trillion-problem-for-money-markets-ahead><strong>Bloomberg</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>An explosive mix of  excess cash sloshing in the financial system, ongoing quantitative easing and a looming debt ceiling deadline could combine to create a headache for major money markets, according...</p>\n\n<a href=\"https://www.bloomberg.com/news/articles/2021-07-05/zoltan-pozsar-sees-a-1-trillion-problem-for-money-markets-ahead\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"BIL":"债券指数ETF-SPDR Barclays美国1-3月国债",".DJI":"道琼斯"},"source_url":"https://www.bloomberg.com/news/articles/2021-07-05/zoltan-pozsar-sees-a-1-trillion-problem-for-money-markets-ahead","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1108104674","content_text":"An explosive mix of  excess cash sloshing in the financial system, ongoing quantitative easing and a looming debt ceiling deadline could combine to create a headache for major money markets, according to Zoltan Pozsar.\nThe Credit Suisse Group AG strategist andlong-timeOdd Lotsguesthasearned a reputationfor predicting the repo madness of late 2019, and is once again predicting volatility in a key funding market. At issue is the amount of money that could flow into the Federal Reserve’s reverse repurchase facility (RRP) as money market funds and banks reshuffle their existing holdings to take advantage of arecent increase in interest.\nThe Fed surprised the market last month by tweaking interest paid on the RRP from nothing to 5 basis points, a move that’s been luring billions of dollars into a facility intended to help the central bank keep a floor under interest rates. Already Pozsar estimates that usage of the facility has jumped by $300 billionsince the RRP rate hike as money market funds dump lower-yielding T-bills in favor of parking cash at the RRP.\nNow he sees the possibility of more money flowing in:\n\n “The first chart on page six shows the results for the largest fund complexes – as of May 31st, the largest money funds had capacity to rotate out of $1 trillion of bills and place that much more money in the o/n RRP facility – that’s a lot. The second chart on page six shows that the bill holdings of these money funds will mature by August 31st – that’s a lot in a short period of time. Not included in these charts are second-tier money funds that hold $350 billion in bills, some $300 billion of which they have capacity to replace with o/n RRPs. \n Thus, we’re looking at $1.3 trillion of flows from bills into RRPs by the end of August!”\nSource: Zoltan Pozsar/Credit Suisse\n\nIn other words, Pozsar argues that money market funds are incentivized to rotate out of Treasury bills and into the newly-lucrative RRP, potentially leaving billions of dollars worth of bills that the market will need to absorb, thereby draining reserves from the banking system.\nSo far that hasn’t been too much of a problem, with shorter-term investors keen to snap up bills ahead of an expected crunch in supply. A reinstatement of the debt ceiling, which was suspended during the depths of the pandemic, is expected to hit supply as the Treasury will have to slash its balance at the Fed to $400 billion before July 31.\nBut ongoing QE from the Fed ($250 billion in the next two months) will leave some $400 billion that still needs to be drained, according to Pozsar’s estimates. That could lead tomarket weirdnessas banks retool their balance sheets:\n\n $400 billion sterilized is a lot, but nothing relative to the $2.25 trillion in reserves added during the pandemic – we shouldn’t really hyperventilate about all this in the aggregate. But we don’t like to look at things in the aggregate.\n\n\n If institutions spend $400 billion of non-operating deposits on Treasury bills, which banks will lose those deposits? Probably those that grew the most during the pandemic, which were J.P. Morgan and Bank of America, where the sum of brokered and non-operating deposits grew by $200 and $125 billion, respectively (see charts on page 3 and 4). Maybe these pandemic deposits are just as sticky as pre-pandemic deposits, but maybe not. We’ll just have to see. \n But if these deposits go, the J.P. Morgan portfolio will lend fewer reserves in the FX swap market, and Bank of America will have less excess reserves to fund its recent, “programmatic” purchases of duration. The liquidity posture of the lender of next-to-last-resort and the buyer-of-last resort will thus change. None of this is an issue for the banks in discussion, but it could lead to events in the markets – FX swaps, long-dated Treasuries, and MBS – that they backstop… Bank of America enters this period with its reserves at the lower end of their post pandemic range.”\n Source: Credit Suisse/Zoltan Pozsar\n\nPozsar’s promised more info on the market effects on Tuesday.","news_type":1},"isVote":1,"tweetType":1,"viewCount":302,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":4,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}