Here come negative rates [probably]: what to look for and why you shouldn't freak out. A thread of sorts... 1/n
The word "banks" is used in a general sense constantly but the specifics matter a lot. Think of banks as 3 major outfits:
Commercial banks: checking/savings, consumer loans, deposits
Investment banks/dealers: sellside trading
Bank parent: Web joining dealer/comm./other parts 2/n
"Reserves" - basically the electronic cash balances that banks hold in their "account" at the Fed to A. meet min. regulatory requirements (required reserves) and B. Effect payments while any additional is deemed "excess reserves" 3/n
Two main ways to create reserves are A. Fed asset purchases and B. Expenditure of treasury general account. When the Fed buys USTs or MBS, they are swapping reserves for the asset via the primary dealer network. 4/n
Two main ways to create reserves are A. Fed asset purchases and B. Expenditure of treasury general account. When the Fed buys USTs or MBS, they are swapping reserves for the asset via the primary dealer network. 4/n
Two main ways to create reserves are A. Fed asset purchases and B. Expenditure of treasury general account. When the Fed buys USTs or MBS, they are swapping reserves for the asset via the primary dealer network. 4/n
As for the TGA, the formal definition for reserve creation is that as the TGA, a liability at the Fed, decreases, reserves will increase to balance. Intuitively, treasury pays out a program, where does it go? eventually? back to the banks. 5/n
As for the TGA, the formal definition for reserve creation is that as the TGA, a liability at the Fed, decreases, reserves will increase to balance. Intuitively, treasury pays out a program, where does it go? eventually? back to the banks. 5/n
As for the TGA, the formal definition for reserve creation is that as the TGA, a liability at the Fed, decreases, reserves will increase to balance. Intuitively, treasury pays out a program, where does it go? eventually? back to the banks. 5/n
+ my prior thread on corridor. While GSEs can earn IOER/IOR and MMFs can earn RRP, the system does not perfectly trap all sources of cash/reserve knock ons which seek homes like home loan banks, sponsored repo, mbs payment cycles 6/n

https://twitter.com/MagnusMacro/status/1245480604914913289?s=20
Alright get to the point, I promised you click bait. The Fed is creating 120bn/mo in reserves via QE - easy. The TGA @ 1.6tr is entering disbursement mode and may need to get as low as $133bn by summer per the debt ceiling regs. Thats 2.1tr by summer 7/n
Put that in perspective: every month, fannie may agency mbs receives payments on the 18th, puts cash to work until it distributes the cash on the 25th to mbs holders. Last month was est. ~40bn of marginal cash and softened o/ns meaningfully. 8/n
Put that in perspective: every month, fannie may agency mbs receives payments on the 18th, puts cash to work until it distributes the cash on the 25th to mbs holders. Last month was est. ~40bn of marginal cash and softened o/ns meaningfully. 8/n
Put that in perspective: every month, fannie may agency mbs receives payments on the 18th, puts cash to work until it distributes the cash on the 25th to mbs holders. Last month was est. ~40bn of marginal cash and softened o/ns meaningfully. 8/n
MMFs will stop buying below 0.00% because they can take cash to RRP - but what about those who can't access? Inflexible cash t-bill mandates? You get what we had a taste of in 2020, negative bill prints. 9/n
MMFs will stop buying below 0.00% because they can take cash to RRP - but what about those who can't access? Inflexible cash t-bill mandates? You get what we had a taste of in 2020, negative bill prints. 9/n
MMFs will stop buying below 0.00% because they can take cash to RRP - but what about those who can't access? Inflexible cash t-bill mandates? You get what we had a taste of in 2020, negative bill prints. 9/n
MMFs will stop buying below 0.00% because they can take cash to RRP - but what about those who can't access? Inflexible cash t-bill mandates? You get what we had a taste of in 2020, negative bill prints. 9/n
If you're a STIR trader, you know this already, you know that your relatively small corner of the world is a suckerfish on the great white shark of the financial system gears in play. So do rates just burry further negative forever? no, probably not. 10/n
The Fed will tweak the corridor - IOER, IOR, RRP, maybe all 3? Yes, as a STIR trader and master of the universe you wonder "by Mar FOMC? Intra-meeting?" Watch the Fed Funds rate - the magic arbitrary signal the street wants is w/in 5bps of the range. 11/n
There’s a tremendous amount of factors in play and per usual, things can change and exogenous events can occur but one thing stays true to tradition, you made it this far..so you get the pic of my dog. 12/end
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