Repo Experts Stumped: How Could Fed Hike Without Draining ANY Liquidity: "This Is A Market By Decree"

Submitted by Tyler Durden on 12/19/2015

"The Fed didn't really drain any liquidity yesterday. They moved the IOER up to .50%, moved the RRP rate up to .25%, and the RRP volume came in at $105 billion, only $3 billion more than the day before. Where was the draining? But interest rates moved up anyway to reflect the tightening, without any fundamental change. Basically, the Fed decreed a rate tightening and the market moved rates higher.... I wonder how many economic interest rate models include "by decree" as a factor?"

As we reported a little after 1:15pm on Thursday when the details of the Fed's first post-hike reverse repo operation were revealed, something very strange and unexpected happened: not only did the Fed not drain $1 trillion, or $800 billion, or even $310 billion, the Fed did not drain any incremental liquidity at all!