Viewpoints

Straight From PIMCO: Repo Markets and Liquidity Conditions

Head of Short-Term Portfolio Management, Jerome Schneider, provides our view on the repo markets and the implications for short-term strategies.

More from this section

Read Transcript

Jerome Schneider, Head of Short-term Portfolio Management: Ever since the financial crisis of 2008, people have become increasingly focused on the repo markets and funding markets as a signal of deterioration of credit appetite as well as liquidity conditions. 

Shots of PIMCO employees working.

At PIMCO, we've been focused on the repo markets for more than four decades, and as a result, we feel that they are real time barometer of not only the cost of liquidity but also the cost of capital in the marketplace, and utilize them in our short term desk as a proxy for where we think short term rates should be in the context of opportunity sets to invest cash defensively. 

Shot of U.S. Federal Reserve Building

Photograph of Federal Reserve Chairman, Jerome Powell

While the Fed's Open Market Operations have alleviated a lot of the short term concerns, when we get into periods of stress that we're currently seeing, repo markets are routinely looked at as the source of that stress.

While repo rates are relatively elevated currently, the signs of stress are pretty limited. Simply put, repo markets are functioning, and as a result—although rates are elevated—there's no uncertainty or shortage of liquidity insofar as that the Federal Reserve continues their open market operations as they have continued to do over the past few weeks.

One of the concerns that we have is clearly that repo markets fail, and more importantly, that dealer balance sheets are reduced so that repo market allocations become reduced. But there's no signals of that right now. And many of the concerns that were prevalent in 2008, including counterparty risks, are simply not apparent at this point in time and should not be a concern for investors. 

As a result, we actually view repo as being a great investment in terms of overnight repurchase agreements providing a tremendous amount of liquidity on an over-collateralized basis to clients.

Call-to-action: For more insights and information visit pimco.com

Disclosure


All investments contain risk and may lose value.

Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, andliquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longerdurations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and lowinterest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increasedprice volatility. Bond investments may be worth more or less than the original cost when redeemed. Management risk is the riskthat the investment techniques and risk analyses applied by PIMCO will not produce the desired results, and that certain policies or developmentsmay affect the investment techniques available to PIMCO in connection with managing the strategy.

There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and eachinvestor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult theirinvestment professional prior to making an investment decision.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributedfor informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy orinvestment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individualinvestors should contact their own financial professional to determine the most appropriate investment options for their financial situation. Thisis not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC,650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO EuropeLtd (Company No. 2604517) and PIMCO Europe Ltd - Italy (Company No. 07533910969) are authorised and regulated by the Financial ConductAuthority (12 Endeavour Square, London E20 1JN) in the UK. The Italy branch is additionally regulated by the Commissione Nazionale per leSocietà e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act. PIMCO Europe Ltd services areavailable only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individualinvestors, who should not rely on this communication. | PIMCO Deutschland GmbH (Company No. 192083, Seidlstr. 24-24a, 80335Munich, Germany), PIMCO Deutschland GmbH Italian Branch (Company No. 10005170963) and PIMCO Deutschland GmbH Spanish Branch (N.I.F. W2765338E) areauthorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) inGermany in accordance with Section 32 of the German Banking Act (KWG). The Italian Branch and Spanish Branch are additionally supervised by theCommissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act and theComisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, aswell as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree217/2008, respectively. The services provided by PIMCO Deutschland GmbH are available only to professional clients as defined in Section 67 para.2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO(Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2), Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: + 4144 512 49 10. The services provided by PIMCO (Schweiz) GmbH are not available to individual investors, who should not rely on this communicationbut contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority ofSingapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment productsare not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed bythe Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited isregistered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). Theasset management services and investment products are not available to persons where provision of such services and products is unauthorised. |PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account theobjectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice andconsider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCOJapan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No.382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. All investments containrisk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; theinvestment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of eachtype of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period ofmanagement and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limitedis managed and operated independently. The reference number of business license of the company approved by the competent authority is(107) FSC SICE Reg. No.001. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.), Tel: +886 2 8729-5500. |PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and productsmay only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO LatinAmerica Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication may bereproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz AssetManagement of America L.P. in the United States and throughout the world. ©2020, PIMCO

CMR2020-0313-1119720

Filters: Reset All

Filters

Close Filters Dropdown
  • Tags

    Reset

    Close
  • Category

    Reset

    Economic and Market Commentary
    Investment Strategies
    Bond by Bond
    Viewpoints
    Careers
    Education
    PIMCO Foundation
    View from the Investment Committee
    Close
  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Multimedia Finder

Filter By:
  • Economic and Market Commentary
  • Investment Strategies
  • Bond by Bond
  • Viewpoints
  • Careers
  • Understanding Investing
  • View from the Investment Committee
  • A
  • B
  • C
  • D
  • F
  • G
  • H
  • I
  • K
  • L
  • M
  • N
  • P
  • R
  • S
  • T
  • W
Clear
Tina Adatia
Fixed Income Strategist
Olivia A. Albrecht
Head of ESG Business Strategy
Joshua Anderson
Head of Global ABS Portfolio Management
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
David L. Braun
Head of US Financial Institutions Portfolio Management
Nathaniel Brown
Erin Browne
Portfolio Manager, Multi-Asset Strategies
Libby Cantrill
Executive Office, Public Policy
Pramol Dhawan
Head of Emerging Markets Portfolio Management
Joachim Fels
Global Economic Advisor
David Fisher
Head of Traditional Product Strategies
Adam Gubner
Portfolio Manager, Distressed Debt
Mary Hoppe
Daniel H. Hyman
Head of Agency MBS Portfolio Management
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Christine Long
Scott A. Mather
CIO U.S. Core Strategies
Mohit Mittal
Portfolio Manager, Liability Driven Investment and Credit
James Moore
John Murray
Portfolio Manager, Commercial Real Estate
John Nersesian
Head of Advisor Education
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Libby Rodney
Steve A. Rodosky
Portfolio Manager, Real Return and Long Duration
Emmanuel Roman
Chief Executive Officer
Steve Sapra
Client Solutions & Analytics
Jerome M. Schneider
Head of Short-Term Portfolio Management
Marc P. Seidner
CIO Non-traditional Strategies
Sapna Shah
Head of Corporate Responsibility
Greg E. Sharenow
Portfolio Manager, Real Assets
Anmol Sinha
Fixed Income Strategist
Cathy Stahl
Global Head of Marketing
Christian Stracke
Global Head of Credit Research
John Studzinski
Vice Chairman
Geraldine Sundstrom
Portfolio Manager, Asset Allocation
Richard Thaler
Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago's Booth School of Business
Jessica K. Tom
Senior Credit Analyst
Jamie Weinstein
Portfolio Manager, Head of Corporate Special Situations
Tiffany Wilding
North American Economist
Andrew T. Wittkop
Portfolio Manager, Treasuries, Agencies, Rates
PIMCO
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Five Characteristics of a Post-COVID World
The Long Climb to Recovery
Straight From PIMCO: 3 Stages of Distress in Commercial Real Estate
Viewpoints

Straight From PIMCO: 3 Stages of Distress in Commercial Real Estate(video)

Straight From PIMCO: 3 Stages of Distress in Commercial Real Estate

John Murray, PIMCO’s head of commercial real estate for the Americas, explains the stages of distress that are likely to unfold in the sector due to the economic shutdown – and the diverse opportunities that may arise for investors along the way.

MORE ON MARKET VOLATILITY

Outlook for Private Credit Markets: Finding Opportunities amid Dislocation
Outlook for Public Credit Markets: Value Still to Be Found
Straight From PIMCO: Our Take on the TIPS Market

Load more results Load {{cCtrl.fetchResults}} more results

PIMCO

INTERNATIONAL

[change]

Subscribe
Please input a valid email address.
Pimco On: