Even if the Treasury market endures the stress of the remaining rate hikes now being priced in, long-term structural defects exist deep in its plumbing (View Highlight)
The most prominent concern is that the most significant dealers in Treasuries (the Fed’s primary dealers and other large financial players) won’t be able to devour and intermediate an incoming 1 to 2 trillion dollars in Treasury issuance each year, which the U.S. government must “print” to fund its operations. (View Highlight)
Monetary leaders have finally begun to take notice of a system rife with structural issues, monopoly power, and, most importantly, blindspots (View Highlight)
Under the surface, however, notable signs of decay have emerged, ever since the infamous October “Flash Rally” of 2014. 10-year Treasury yields plunged 0.4% then swiftly rebounded for no apparent reason. Over five U.S. agencies failed to diagnose an actual cause in the aftermath. (View Highlight)
These firms, though, are also slowly turning money markets into an increasingly complex and opaque beast. So much so that power structures are bound to take notice eventually. Large portions of the financial system are still covert. (View Highlight)
Uncleared bilateral repo (UBR), is one of the most elusive (and exotic) money markets. Its title sounds confusing, but it denotes the simple act of swapping securities for cash overnight for a fee, doing so anonymously — not using a central counterparty or custodian in the transaction. (View Highlight)