Fed’s repo operations will not fix rate spikes, dealers say

Risk USA: leverage constraints remain, even after massive injections of emergency liquidity

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The US Treasury repo is likely to remain volatile through the year-end and beyond despite the Federal Reserve’s efforts to stabilise overnight funding rates, according to rates specialists at two primary dealers.

Jonathan Blender, Deutsche Bank’s head of secured and synthetic funding for fixed income and currencies in North America, said the leverage ratio limits the ability of dealers to provide funding to clients – even with the Fed pumping $120 billion per day of cash supply into the market.

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