Deciphering a Repo Dislocation

A sudden cash crunch in mid-September has exposed new cracks in US money markets and is putting pressure on the Federal Reserve to deliver concrete measures to shore them up.

If there is one thing that whips up Wall Street, it is any sort of bottleneck in ordinarily placid short-term money markets. So in September, when getting overnight loans in exchange for US Treasuries suddenly became expensive—much sooner in the month and much more dramatically than expected—it created a stress reminiscent of historic funding shortages.