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  3. What's on Our Mind: The Repo Market

What's on Our Mind: The Repo Market

Submitted by InFocus Financial Advisors, Inc. on December 16th, 2019

You might be asking, what the heck is the repo market? An easy way to describe it is akin to the way you think about the plumbing in your house. Like your plumbing, no news is good news. The repo market is the overnight loans market between banks and corporations. Yes, banks make loans overnight to companies for various purposes such as payroll, debt payoff, etc. It truly is the plumbing of our financial system.

In the 3rd quarter, there was a spike in interest rates from 2% to nearly 5%. The technicalities aren’t necessarily important, but there was a credit crunch in this market. The liquidity, or ability for companies to borrow suddenly dried up and rates spiked. Much like if your plumbing started making noise, this “repo-spike” has our ears perking up. When the plumbing is acting funny, we start paying attention to what could possibly be the larger impacts of such an event.

This week is another potential event for causing a spike in overnight rates. Corporate taxes are due and often times these large payments can be paid using loans from the repo market. While corporate tax payments historically have not caused any spike or had any noticeable impact, in September it did. So now we’re watching closely.

This isn’t intended to scare you about a cataclysmic economic event, but these are the types of things that we pay attention to daily. Rest assured we will be paying attention to that market, the plumbing in the financial system as we always do.

The views are those of Robert Jeter and Eric Johnston and should not be construed as specific investment advice. Investors cannot directly invest in indices. Past performance is not a guarantee of future results.
Investments in securities do not offer a fixed rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No system or financial planning strategy can guarantee future results.
Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards.
Investment Advisor Representative offering securities and advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker dealer and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity.

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Investment Advisor Representative offering securities and advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker dealer and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity.

Individuals affiliated with this broker/dealer firm are either Registered Representatives who offer only brokerage services and receive transaction-based compensation (commissions), Investment Adviser Representatives who offer only investment advisory services and receive fees based on assets, or both Registered Representatives and Investment Adviser Representatives, who can offer both types of services.

This site is published for residents of the United States only. Financial Advisors of Cetera Advisors LLC, may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Not all of the products and services referenced on this site may be available in every state and through every advisor listed. For additional information please contact the advisor(s) listed on the site, visit the Cetera Advisors LLC site at www.ceteraadvisors.com.

 

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