Monday's dislocation in......>

US TSYS/OVERNIGHT REPO: Monday's dislocation in overnight funding markets may

change the complexion of Wednesday's FOMC decision.

- Rate spikes galore, highlighted by O/N GC repo trading as high as 8% (averaged

2.88%, per TD, vs 2.28% on Friday). BaML says expected to open at 3.5% today.

- Many drivers being cited, partly factors such as corporate tax payments, Tbill

supply etc...but also, more structurally: reserve scarcity, as the Fed balance

sheet has shrunk (Excess Reserves down 50%+ in 5 yrs, to 2011 levels).

- Wrightson ICAP wrote there is a significant risk that effective Fed Funds on

Tuesday could exceed 2.25%, i.e. the top end of the current target range.

- Previously in similar cases, the Fed has cut IOER more than the Funds rate cut

(i.e. by 30bps rather than 25bps that is expected for Funds rate).

- As of yest, an IOER cut >25bps on Weds not foreseen by any sell-side analyst.

- Nor did sell-side say much about a standing repo facility, which could help

alleviate some of the structural problems. But unlikely to be ready yet.

- Expect Powell to be asked about these mkt moves` impact on monpol

transmission, & how close Fed is to a repo facility/restarting asset purchases.