Hi, thank you for the post. I do not understand why repayment of THOSE securities destroys reserves? You write "... allowing its Treasury and mortgage-backed securities to mature. Repayment of those securities destroyed reserves. By September 2019, that process reached a breaking point in the repo markets: the Treasury's attempt to issue debt caused repo rates to spike." Is it that the issuers (banks) repay their MBS by reducing their reserves? And is it that the Treasury repay by reducing its TGA or its reserves, in a manner of speaking? Repo rates spike because T's got depleted in the repo market AND the T tried to issue more T's?
Hi, thank you for the post. I do not understand why repayment of THOSE securities destroys reserves? You write "... allowing its Treasury and mortgage-backed securities to mature. Repayment of those securities destroyed reserves. By September 2019, that process reached a breaking point in the repo markets: the Treasury's attempt to issue debt caused repo rates to spike." Is it that the issuers (banks) repay their MBS by reducing their reserves? And is it that the Treasury repay by reducing its TGA or its reserves, in a manner of speaking? Repo rates spike because T's got depleted in the repo market AND the T tried to issue more T's?
Neilson, when we talk about TS,
........................................Fed...............................................
-Treasuries -TGA
.................................................................................................
when we talk about MBS
..................................Fed...................................................
-MBS -Reserves
..............................................................................................
............................Bank........................................................
-reserves -deposits
...............................................................................................
...........................PD.................................................................
-deposits
.............................................................................................
What do you think?