As readers are well aware, I've been fixated on the development of the Fed's Death Star (and Term Deposit Facility TDF). I have tried to push back against "other" more respected bloggers as to the sanguine nature of these NEW tools. I continue to believe that many analysts are still calibrating their prognostications to a financial system plumbing that died with the credit super cycle,
Here's a Primer: CBs that "offer" IOER are -by definition- impaired or beholden to systemically important entrenched interests. The Death Star is a Financial System 2.0 operation to help manage big number "on balance sheet" assets. The D-Star and thus, the TDF ,need to be primed beyond OMD "call-arounds" for participating counterparties to play along. Academic side line Pollyanna's have been telling you the rate should be even with IOER and little collateral damage would occur.
We believed the rate would need to be slightly ABOVE IOER for participants to play along. Others we have respect for have felt the spread could be closer to 15bps. Meanwhile, media pundits yammer on about the Funds Rate and FF futures concept of "the first rate hike." Dino....meet the Tar Pit.
Here's the latest from long time market watcher Ray Stone of Stone McCarthy fame (#GIK): The Fed did just shy of $125B in 7 day TDF yesterday at 29bps (4 over IOER) to 58 counter-parties (read minions). The levels needed for sufficient Death Star efficacy is more like 400 to 500B. Remember, the Fed has "electronically produced" nearly $2.7T in balances. Cut to Mr. Stone's analysis: "
“At some point, the premium will serve to distort the money
market yield curve, a development that may have adverse
implications for CP issuers, and ultimately macroeconomic
Don't listen to me, I'm just a dog watching TV, maybe you should listen to him.