Topic · Core Finance & Asset Classes
← All topicsMoney Markets & Funding
37 articles · 5 checkpoints · 23 deeper reads · 9 reference notes
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Everything with a maturity under a year, T-bills, commercial paper, repo, bank CDs, trades in one interconnected market where cash managers park money overnight to a few months, and it is here, not in the long bond, that the central bank's policy rate is first felt.
Commercial paper is how large corporations borrow for a few weeks without going through a bank or registering with the SEC, and asset-backed commercial paper does the same trick for pools of receivables, until the 2007 freeze showed how thin the backstop behind it really was.
Banks hold reserves at the central bank the way a household holds cash: too little and an ordinary payment can bounce, too much and it earns almost nothing. That trade-off draws a demand curve, and where the supply of reserves sits on it decides whether short-term rates are calm or violent.
Short-selling a stock requires borrowing it first, and the market that makes that possible runs on cash collateral and a rebate rate, the fee for a hard-to-borrow name is hidden inside a rebate that goes negative, not quoted as an upfront charge.
The world's demand for safe, liquid collateral to post against loans, derivatives and repo has grown faster than the supply of government bonds that qualify, and when good collateral is scarce, it trades at a premium that shows up as unusually low yields and negative repo rates.
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