MF Global Bankruptcy Sends Liquidity Rushing to The Fed

Developments eerily similar to the Lehman moment in September 2008 are causing foreign institutions to park their money in the Fed in exchange for Treasury bonds. This comes after the massive flock of European banks parking their money in the European Central Bank, meaning there is very little liquidity left. MF Global’s bankruptcy may just tip Europe off the edge, as these Fed Reverse Repos are very good leading indicators of a European financial plunge. The desiccation of liquidity quells any hope that European banks will be supported in the coming days. These repurchase agreements are banks selling their liquidity to the Fed for bonds and securities to be later paid back with interest. The function is a repo for the Fed, but a reverse repo for the counterparty.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: