Starting in September the US securities repurchasing market saw billions borrowed every day as some players desperately needed cash, sending interest rates much higher. In a report released yesterday the BIS blames the mess in part on banks reluctant to lend, but more so on ‘non-financial institutions, such as hedge funds heavily engaged in leveraging up relative value trades’. Nevertheless, in their quarterly assessment they reaffirmed the health of global markets. Head of economics Claudio Borio noted that repo markets ‘may again find themselves in the eye of the storm should financial stress arise at some point’.
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