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The dangerous game of hedge funds

The huge financial flows to the so-called Repo market, without that the Public would not even notice it. However, these transactions for the smooth Functioning

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The dangerous game of hedge funds

The huge financial flows to the so-called Repo market, without that the Public would not even notice it. However, these transactions for the smooth Functioning of the economy are hugely important. In September, the Repo market is huge rashes (we reported). The US Central Bank, the Fed had to help out with billions in bridging loans, they did so vigorously since the financial crisis of 2008. Some observers saw the Intervention already the harbingers of a new economic crisis.

A new report by the Bank for International settlements (BIS) in Basel, shows that the crisis on the Repo market is not a random event. Banks had suddenly become more cautious, and would hardly want to provide such capital, although the demand exists, at the same time, hedge funds had to borrow a lot of funds. According to the "Financial Times" are with Millennium Partners and Capula two large hedge funds in the Repo market is particularly active.

experts warn against Exaggerations

A popular strategy of hedge funds was to buy U.S. Treasury bonds and to sell at the same time the corresponding derivatives, the price difference remains as a small profit. The government bonds, but the Repo market to borrow, with the fresh capital, then the state can be bought bonds. This process could repeat several times. The hedge Fund would have to rely on other sources of Finance on new platforms, because they get no credit from banks more. These new sources could lead to unusual market dynamics, as Claudio Borio, chief economist of the BIS. The Repo markets could therefore back out of when in the financial markets, tensions arise.

experts described the Repo market as a grease for the gears of the financial system. On the Repo market, an exchange of money against securities will take place after a previously specified period, usually only a day, instead of the reversal. Money demand of investors such as hedge funds or the securities dealer, the security of government bonds or other high-quality papers of the world. As a money provider of money market funds, or other assets eligible managers. You receive interest in the Form of the Repo rate.

The experts of the BIS to warn of Excesses in the financial markets. The strong appetite for risk, raising the question of how sustainable the reviews were. Would be difficult to significant changes in the stock markets. "This Mix makes certain weaknesses in the financial markets suggest that both market participants and Central banks, great attention should," said BIS chief economist Borio.

Created: 09.12.2019, 15:29 PM

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