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It’s coming

Today another key gauge of funding stress in the credit markets started flashing red, signalling  banks are bracing for a wave of potential funding disruptions amid the soaring geopolitical turmoil, or may already be scrambling to procure funding to meet commodity margin calls.
The Fed's balance sheet is now a record $9 trillion while the Fed's reverse repo facility holds a massive $1.5 trillion. Heightened geopolitical uncertainty together with increased market volatility has encouraged banks to build up their precautionary cash holdings.
This precautionary borrowing is bumping up against a timing constraint. So keep an eye on both CP and FRA spreads to OIS, which will be among the earliest available indicators of a major market liquidity lockdown.


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