Throughout 2019, banks’ end-of-quarter tidying of their balance sheets has resulted in spikes in the U.S. overnight repurchase agreement (repo) rates. This volatility has set the market on edge. The Federal Reserve stepped in, with traders injecting cash into U.S. money markets. As a result, the last day of the third quarter (Monday) was relatively uneventful in the repo market.

Still, this year’s market volatility signals a broader risk. As a recent report from Fitch Ratings puts it: “While the Fed was ultimately able to stabilize repo dollar funding rates through ad-hoc funding infusions, further repo-market volatility could exacerbate global liquidity issues, potentially extending to other asset classes and players beyond the U.S. repo market.”

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