In the summer of 2014, repo fails suddenly surged out of nowhere. Between the events of the violent taper selloff in June 2013 and the first half of 2014, fails had been particularly calm if somewhat gently rising as the trend had it dating back to the QE’s. It had become common to find total fails (meaning both “to receive” plus “to deliver”) less than $100 billion. In fact, in the six weeks prior to the start of June 2014, fails had only been above $100 billion in one week and that was barely. The eight-week average was smack on the round number.

The week of June 4, fails jumped but not wholly out of character. At $130 billion, it was the highest since March 2014, but not really that much more than the $127 billion reported in mid-April. The following week, however, represented a clear shift in funding. Fails surged to $388 billion or the highest since the destructive days of September 2011. The week after that, June 18, fails jumped again, hitting $402.9 billion. They were more than $300 billion still the next week. Despite no looming event or obvious catalyst, it was clear that “something” had changed in repo funding, collateral in particular.

The “rising dollar” and the absolute peak in so many asset prices (the start of “deflation” and the slow trudge toward open economic disarray) began during all of this or very shortly thereafter. It was a clear warning sign.

While fails would settle back down again somewhat, remaining still more volatile than prior to June 2014, GC rates never did. Throughout the “rising dollar” period, repo rates would find both an upward slope and increasing volatility. The peak in that respect came on August 12, 2015, notorious the day before in the PBOC being rocked by “dollar” pressures into sharply “devaluing” the CNY rate. Global liquidations were not far behind.

The fails issue would revisit again just before the end of 2015, in late December. Having nothing at all to do with Janet Yellen and the irrelevant FOMC, fails suddenly jumped to $380 billion the week of the FOMC decision before registering nearly $400 billion again the last week of last year. In what was another true testament of monetary policy failure, the Fed’s reverse repo program showed absolutely no disturbance whatsoever – no scramble to use the Fed’s vast SOMA holdings to fill in what was clearly a disruptive collateral gap.