Good morning. Looks like I picked a great time for a trip out of the country! I am back and jetlagged and therefore blogging in the extreme early AM.

To get to the point, it’s not surprising we see futures down large here on any excuse, coronavirus or not, since the Federal Reserve has made good on its hint it would seek to reduce repo market support.

Reviewing developments since about week ago, outstanding support in the Temporary Open Market Operations (TOMO) has dropped substantially.

As of 02/21/2020 TOMO outstanding has dropped below the total (estimated) equity of the external Primary Dealer system, now 0.9x. This compares with 1.2x at 02/12/2020 the last time I ran an update before leaving. Recall it was already trending down. Falling rates in the treasury market were also consistent with a ‘growth concern’.

Repo Analysis Tear Sheet: 02/02/21

To try and guide more informed (and profitable) trading decisions vs reacting after-the-fact, one needs to generally seek to take the (correct) tails of the behavioral distribution. In this regard, I suggest now paying close attention to any coverage of special meetings involving Fed officials and and any breadcrumbs dropped in their further publications versus just watching the price levels of the indexes.

A note on timings of daily update calculations: Repo operations can vary somewhat by timing, even ‘regular’ ones. Generally, the TOMO repos get announced/published to the public (in full) by shortly after market open. POMO repos have been coming generally as late as 11:45pm. Therefore, I am withholding publishing any new calculations until after that 11:45 horizon in order to try and fully capture the days’ activity in one shot and not have any discrepancies from one day to the next. In the past, it’s been possible that numbers I’ve incorporated on a given day missed some of the activity later that day. This post concerns updates through end of last week.

I’ll share some thoughts specifically on COVID-19 (coronavirus) in a separate post. It’s serious, but not the end of the world. OMG! You mean, there’s viruses and sometimes new ones ’emerge’?! Call the press!

and don’t forget to bring a towel…