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Brian Chappatta

Chaotic Repo Funding Market Fell Asleep at the Wheel

A sudden squeeze at an unusual time has traders on alert. But the reasons should have been evident in advance.

Paying attention would have helped.

Paying attention would have helped.

Photographer: Filippo Monteforte/AFP/Getty Images

For the past two days, a usually under-the-radar part of critical market plumbing has captivated traders. It’s probably best summarized by this chart:

It doesn’t take an ardent follower of the rates on overnight general collateral repurchase agreements to recognize a sharp spike. The funding rate rose more than 600 basis points to as high as 8.75%. These kinds of sharp increases happen from time to time around the end of a quarter but rarely in the middle of a month.