US repo-market spikes bring back memories

Seizing up: Traders work on the floor of the New York Stock Exchange. Volatility in short-term funding markets is a concern because at the end of the day, it can hinder central bankers’ ability to manage monetary policy. — AFP

NEW YORK: Spikes in a key short-term interest rate are raising eyebrows in the arcane-but-vital overnight funding market, drawing unsettling comparisons with turmoil that rocked the space more than four years ago.

Strains started showing up late last week. The bond-buying frenzy that stoked November’s US debt rally led to a surge in demand for financing in the market for repurchase agreements, where participants engage in short-term lending or borrowing that’s collateralised by government securities.