Odd Lots Zoltan Pozsar on What’s Going on in Rates Markets Right Now
Sep 9, 2021
Zoltan Pozsar, Global Head of Short-Term Interest Rates at Credit Suisse, shares his deep insights into the current financial landscape. He discusses the overwhelming liquidity in the U.S. financial system, marked by a staggering $1.19 trillion in the Fed's reverse repo facility. Pozsar explains the implications of tapering asset purchases and how banks are managing excess cash and deposit quality. He highlights the evolving dynamics of interest rates, treasury strategies, and lending practices, showcasing a system that’s both stable and fraught with complexities.
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Dollar Glut
- Excess demand for dollars has disappeared, impacting cross-currency bases and interest rates.
- The financial system is awash in dollars due to various factors.
Liquidity Management
- Excess liquidity isn't necessarily problematic, as it's being managed effectively.
- The reverse repo facility acts as a buffer, absorbing excess cash and supporting money market rates.
Aversion to Negative Rates
- The Fed raised the reverse repo rate due to an aversion to negative interest rates.
- This decision prioritizes rates for end investors, impacting money funds and deposit rates.