Repo Rates Spike: Are Lessons Of The 2019 Funding Crisis Being Heeded?
Portfolio Pulse from Neil Dennis
The U.S. repo market is experiencing stress with surging short-term interest rates, reminiscent of the 2019 funding crisis. Repo rates have spiked, with overnight general collateral repo yields exceeding 5.5%. The iShares $ Floating Rate Bond UCITS ETF (FLOT) saw a slight increase in early trade on Tuesday. Analysts are drawing parallels to the 2019 crisis, but banks are considered better prepared now, having passed Fed stress tests with substantial reserves.
December 05, 2023 | 5:47 pm
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The iShares $ Floating Rate Bond UCITS ETF (FLOT) experienced a minor increase of 0.1% in early trading on Tuesday, potentially due to its reference to overnight financing rates amidst the repo market stress.
FLOT's slight increase in early trading could be attributed to its reference to overnight financing rates, which are currently experiencing volatility. As the ETF is directly tied to short-term rates, it is sensitive to changes in the repo market. However, the impact is likely to be moderate given the ETF's broader exposure and the fact that banks are reportedly well-capitalized.
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