Eurodollar University OMG! You Won’t Believe What Just Happened in the Treasury Market
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Jan 1, 2026 The Fed faces a year-end surge in repo borrowing, raising eyebrows about collateral flow issues. Repo fails are spiking, signaling tightness rather than a full-blown crisis. Meanwhile, Treasury bill yields are tumbling, hinting at collateral scarcity. Jeff also explores how the Fed's not-QE practices could worsen this situation. Discussions on FOMC minutes reveal a tilt toward rate cuts, while a stabilizing yield curve suggests underlying consumer vulnerabilities heading into 2026.
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Year-End Repo Surge Signals Collateral Strain
- Repo borrowing and year-end facility use surged, signaling acute funding strain beyond normal seasonality.
- Jeff Snider argues this points to collateral flow problems, not simply low bank reserves or QT.
Fed Repo Use Exploded Compared To Last Year
- Fed repo facility borrowings jumped from minimal levels last year to tens of billions this year, peaking at $75 billion in one auction.
- Snider says this magnitude cannot be explained solely by modest changes in bank reserves or QT narratives.
Repo Fails Point To Interrupted Collateral Flow
- Repo fails spiked sharply in mid-December to levels last seen in major past crises, indicating interrupted collateral flow.
- Snider stresses fails signal collateral interruptions, not necessarily a full systemic collapse.