"Many might not be aware, but the Fed introduced a quarterly survey “on changes in credit terms and conditions for securities financing and over-the-counter derivatives transactions” over a year ago.
The point was to shed light on the mysterious practices of the shadow banking sector and in particular the daily goings on in the repo finanicng markets.
As the Bundesbank’s Financial Stability Report noted at the time, this was an important step forward (even adding that the Eurozone should do something similar):
After all, as the Bundesbank noted, it’s the only relatively contemporaneous survey of repo finanicng conditions that exists. In the world.
So were there any clues (especially with regards to MF Global and its repo-to-maturity trade)?
Well there was this one thing:
The point was to shed light on the mysterious practices of the shadow banking sector and in particular the daily goings on in the repo finanicng markets.
As the Bundesbank’s Financial Stability Report noted at the time, this was an important step forward (even adding that the Eurozone should do something similar):
There is, to date, not enough information available specifi cally on international network connections. This is especially true of the segment for secured money market transactions, known as repos. Repo markets are key to liquidity management and represented one of the central channels through which shocks were transmitted during the crisis. More over, changes in behaviour on repo markets can also be used as a timely indicator for a loss of confi – dence in an individual fi nancial institution or in the financial system as a whole.The latest Fed survey dates back to this September, but given the current repo chaos we’re experiencing in bond markets (especially post-MF Global) , it’s worth taking a look to see if there was any sign of the tension coming.
After all, as the Bundesbank noted, it’s the only relatively contemporaneous survey of repo finanicng conditions that exists. In the world.
So were there any clues (especially with regards to MF Global and its repo-to-maturity trade)?
Well there was this one thing:
Mark and collateral disputes. Against the backdrop of increased market volatility and heightened concerns about developments in Europe, one-fifth of dealers reported that the volume of mark and collateral disputes with other dealers and hedge funds increased somewhat over the past three months. A similar fraction of respondents also indicated an increase in the duration and persistence of such disputes with other dealers. For all other counterparty types covered by the survey, the volume, duration, and persistence of mark and collateral disputes were little changed.Oh, and this other thing:
Securities Financing (Questions 51–78)6 In contrast with previous surveys, responses to questions focused on securities financing pointed to a tightening of some of the terms under which all specified types of securities except equities were financed.at http://ftalphaville.ft.com/blog/2011/11/10/741351/a-snapshot-of-collateral-stress-courtesy-of-the-fed/
The reported tightening of terms over the past three months was generally evident for both average and most-favored clients and was most visible in the increase in haircuts and widening of financing spreads over benchmark rates.
Modest net fractions of survey respondents indicated that demand for funding of corporate bonds (high grade and high yield) as well as RMBS (agency and non-agency) had increased over the past three months.
Indeed, notable net fractions ranging from one-fourth to nearly one-half of dealers reported an increase in demand for term funding with a maturity of greater than 30 days for high-grade corporate bonds and agency and non-agency RMBS. A smaller net fraction noted an increase in demand for term funding for high-yield corporate bonds..."
