Tuesday, May 28, 2013

PIMCO's Bill Gross on Repo Rates

From MarketWatch:
Most of the global capital markets have honed in on a few simple words  in Federal Reserve Chairman Ben Bernanke’s testimony before Congress Wednesday. But Pimco’s co-chief investment officer Bill Gross has strayed from the pack, focusing his commentary on a largely forgotten piece of the chairman’s remarks.
Gross’s topic du jour: the “overnight repo” rate.

That’s the rate that banks charge to park their money overnight at the Fed. In the U.S. it is currently set at 0.25%, giving banks — not investors — who lend their reserves to the Fed a source of easy income. In a world of low interest rates, 0.25% for lending money overnight is nothing to shrug at.

This policy, Gross says, amounts to a subsidy from the Fed, sending a strong indication about what he thinks of it. Here’s his tweet...MORE