67c There are 6 (to 20?!) Liens on each US Treasury

US Treasury Securities are the financial system's best collateral. But quantitative easing pulls Treasuries out of the system! In response market participants are 'forced' to repledge the SAME security more and more and more and more and more and more (and more and more and more ... and more and more and more and more and more and more and more and more and more and more and more)!

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--EP #67: PART 03 TOPICS--
00:01 Are recent US Treasury Security auctions going so well because the central bank is buying?
02:00 Bond yields are lowered by quantitative easing... by around 50 basis points. Wait, wut?
04:50 Bond yields are lowered primarily and overwhelmingly by the market first.
06:06 QE is a two-part asset swap but mainstream focus is just on part-one: bank reserves
09:06 Part-two of QE is the removal of collateral (US Treasuries) from banks. Is this wise?
11:18 Banks utilize collateral in multifarious ways to extend funding to banks and non-banks
14:03 An example of collateral hypothecation using Morgan Stanley, Goldman Sachs, and Citigroup
21:35 Is the 50 basis point reduction in bond yields by QE a desperate collateral bid?
23:24 Jeff summarizes the main takeaways of the article.

--------REFERENCES--------

---------WHO-----------
Jeff Snider, Head of Global Investment Research for Alhambra Investments and Emil Kalinowski, green recycler. Art by David Parkins.

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#JeffSnider #Rehypothecation #CollateralMultiplier

[crouchhill]

I'm not as clever as most of the listeners herre but I have to replay some parts to fully understand, I do get there.
Thanks to Emil & Jeff for this education. 🤗

[battlehill]

WHY is the FED doing this then???? It can't be because they think it will help the system -- they can see it hurts the system. Which leads you to say -- WHAT IS THEIR REAL GOAL???

[MurrayHerts]

Appreciate you guys, thanks for sharing your knowledge as ever

[msurkan]

If central bank purchases of bonds don't help the economy, why is it that every time a central bank starts selling bonds on their balance sheets economies start tanking with stock sell-offs, etc? Just look at how the Fed has been forced to stop every asset selling attempt they've made in the last decade when the markets tanked. This clearly demonstrates there is a link between Fed asset purchases as the markets.

[tqbrowne]

This is one of many "they did the math" moments that keeps me tuning in! I feel like I have a much better understanding the availability of collateral and the impact of QE now that I can think in terms of these estimates.

[tiborzsoldos]

It would be an interesting discussion about the actual stakeholders in the federal reserve, institutions and individuals, how are there “mistakes “ affecting them?

[charbelzaharam]

Wow. That was one of the best episodes, top notch. Thanks

[mooncanoe]

It's amazing how you guys coordinate the same clothes from episode to episode. The level of detail!

[superf]

Great show, Emil. Once again, clarifying the original article enormously, by highlighting hidden pearls of wisdom.

[Houthiandtheblowfish]

19:40 6.66 points should tell you something

[KL]

That was an exellent explanation of what is going on. Listening to both of you is a real pleasure

[williamnyakatura]

Thank Jeff and Emil....this was simply brutal. I will align for the shortage of collateral to play it's self out... at some point.

[schleppyzee]

Thank you both, awesome as always. Emil, I absolutely love the paper notes, you are the man!

[topol]

Awesome show. I always learn something new from Jeff and you, emil.

[jorgeponce]

JEFF, please, WHY do you keep repeating reserves are not useful?
1--Banks earn IOER, which right now has a higher rate than 28-day T bill.
2--Reserves do flow to the repo market to the money side (please, check with Zoltan Poszar and Claudio Borio)
3--Prime dealers DO lend money, not just collateral.
4--Reserves can be converted to vault cash, thus eliminating the risks of a run on the bank.
GRANTED, there is the collateral and derivatives side as well, but that is not the same as saying reserves are useless.

[robertcharter]

How are there only 5k subscribers? Best macro show on YouTube

[not_yet_implemented]

In context of the asset swap at 7:25, what is the motivation for the commercial bank to trade a bond for a bank reserve? In previous eps i understood that the banks are not really doing anything with bank reserves.

[colevincent]

I’ve recommended the show to 20 new ppl

[GenXstacker]

I don't believe those numbers for a second. The market is just front running the Fed. If 3 years of grad school taught me anything it's that 95% of academic literature is most useful as toilet paper during a pandemic. Perhaps they can use that substitution in their next CPI calculation.

[zehahahha]

Is Collateral available to be pledged a derivative of the collateral reuse rate or is it the other way around?...if it is the former then you are hypothesizing that any increase in the overall notional value of leverage via collateral can only be attributed to an increased multiplier. How does this hypothesis fare in an environment where new treasuries via fresh issuance through fiscal stimulus are being introduced, wont that expand the collateral base available to be rehypothecated? Also can you please explain what happens to the entire collateral chain when QE happens, wont it tighten liquidity conditions because transactions in the chain which were earlier being rolled over can no longer be rolled over and instead all the parties in the chain will have to square up their positions. How would that squaring up even happen considering the size of the overall leverage