How big is the current liquidity hole in the market? Says one provider: 'It could be $100 billion to $150 billion.”
As chaos gripped a key funding market for Wall Street this week, a number of investors seized the moment and took advantage of the surge in short-term borrowing costs to lend a hand to bond dealers, banks and hedge funds feeling the pinch.
When Souza walked onto the trading floor in the early morning hours in San Francisco on Tuesday, he said his team didn’t balk when repurchasing rates soared as high as 8%. Feeling this would be a short-term “market dislocation,” he lent out funds to investors eager to borrow funds through the repo market.The spike in repo rates created havoc for borrowers who use leverage to purchase assets and don’t always have enough cash on hand, which can cause a need for repeat, overnight funding.
McColley also said that it’s “nice once in awhile not having the role of liquidity provider being taken for granted.” Several reasons have been put forth for why liquidity has been drained from the financial system in recent months. Some point to the Federal Reserve’s decision to wind down its balance sheet from crisis-era levels, to Wall Street dealers needing to fund the deluge of Treasury debt to help fund the U.S. fiscal deficit, along with quarterly tax payments from corporations due earlier this week.
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