Still Talking Collateral and Implying Shortage

by Jeffrey P. Snider
Alhambra Partners

Repo fails in the past two weeks (the week of August 17 the most current figures) were both more than $192 billion. Though that level is highly elevated, those were actually the fewest fails since mid-June, and the fewest in consecutive weeks since early May. The 8-week average remains about $245 billion, a noticeable increase from even last year’s “dollar” charm.

At the end of May 2014, the 8-week average of repo fails were just more than $100 billion. Thus, since the start of the “rising dollar” period, repo fails have increased, on average, more than two and a half times, often punctuated, as mid-March, by rather alarming extremes. This is a clear, unambiguous signal of collateral problems; i.e., a shortage.

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