Tighter supply, tougher rules rattle key U.S. funding market
Last month's spike in failed trades in Wall Street's key funding market sparked fears that it could be a sign of trouble brewing in the U.S. financial system, but the disruptions appear more likely to mark the "new normal" of the post-crisis era.
Wall Street institutions, hedge funds and real estate investment trusts rely on the $5 trillion repurchase agreement market to finance their daily trades and any disruption is worrying because it could force them to cut holdings of bonds, stocks and other securities.
What unsettled some traders was that the jump in failed trades evoked memories of the global financial crisis when such a spike was one of the symptoms of credit markets seizing up and the financial system choking on toxic subprime debt.
The amount of deals where one party failed to deliver the government debt pledged as collateral jumped to $456 billion in the week ended March 9, the most since a record $2.6 trillion during the financial crisis, according to industry and New York Federal Reserve data. (Graphic: tmsnrt.rs/1quIYM9)
About one in 10 Treasury-backed repo trades failed in early March, compared with one in three during the crisis.
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http://www.reuters.com/article/us-usa-markets-repos-idUSKCN0XA0QO