Making Sense

The Federal Reserve Bank had announced a Bank Term Funding Program as a result of the crisis at SVB Bank and Signature Bank.  An additional funding facility was made available - " Bank Term Funding Program (BTFP)" - to eligible depository institutions to help meet the funding needs of all their depositors.  The facility will offer loans of upto 1Y pledging US Treasuries, Agency Debt, MBS and other qualifying assets. These assets will be valued at par. Key Features: 1. Cease to make new loans on Mar 11, 24 and Ready access through the Discount window will be made available to banks at the current upper ceiling rate of 5.50%. 2. At the time of Facility introduction - The rate for term advances was at the one-year overnight index swap rate plus 10 basis point (currently - 1Y OIS Rate 4.81+0.10) which has now been revised to be "not lower than Interest Rate on Reserve Balances". The BTFP window offered banks a good arbitrage opportunity as the Funds borrowed th...

Risk Sentiment is off to a poor start as Asian Equities are trading in the red to the exception of Japanese Equities. USDCNH is trading higher on PBoC Easing speculation which could come in as early as Monday and TWD is bearing the brunt on account of Election uncertainty. USD Index consolidated overnight closing 0.23% higher on the day ahead of the much anticipated CPI Report. Implied pricing for Fed Fund Rates shows 138 bps of rate cuts into 2024. Major Overnight Headlines An "Unauthorized" Post On X stated “Approval Of Bitcoin Spot ETF ”. Bitcoin prices dropped 1.85% after touching a high of 47897 post the SEC Clarification. Crude Oil prices continued to chop around and rose 1.5% The Atlanta Fed's GDPNow forecast for Q4 GDP was revised down to 2.2% from 2.5% in the previous estimate. World economy is estimated to have grown 2.6% during 2023, down from 3% in 2022 but stronger than the 2.1% growth it projected in June . Global growth, however, is expected to slow to 2.4...

For the week ended 29 March 2023, Federal Reserve released the report on Factors affecting reserve balances. This report has gained particular significance post the collapse of SVB Bank. The report offers insights into the extent of liquidity stress in the system by providing data on facility usage by depository institutions. There is USD 11 bn reduction reduction in loan facility driven by a fall of USD 22 bn through the primary credit discount window and USD 11 bn rise from the Bank Term Funding program, a facility announced in the aftermath of banking crisis to allow institutions to borrow upto a period of 1 year on collateral which will be valued at par.  To just give a sense, on the rates for the facility usage ( as on 31 Mar 2023) Primary Credit 5% Secondary Credit 5.50% Seasonal Credit 4.80%  Bank Term Funding program 4.85% While the borrowing from the discount window / BTFP and other credit extensions is elevated, it has shown signs of stabilization as has other a...

  Data released on  reserves held by depository institutions that were borrowed from the Federal Reserve through the Discount Window (DW), Paycheck Protection Program (PPP) Liquidity Facility (PPPLF), Bank Term Funding Program (BTFP) announced on Mar 12 and other lending facilities show a sharp surge in use of Federal Reserve Facilities. Refer to earlier article. In the press conference, Fed Chair Jerome had explained the Credit Extensions as Fed is lending to the bridge bank and it’s a loan that’s 100 percent guaranteed by the FDIC so there’s no risk in it for us which I had highlighted in the earlier note too. There is a + USD 42 bn increment in the BTFP and Other Credit extensions has risen by USD 37 Bn. Also the foreign repo facility saw an uptake of USD 60 bn.