The spike in overnight Repo rates back in September is more interesting for what it tells us about developments inside the Fed Open Markets operations (FOMO), rather than anything else.
Back in "normal times" (pre-2008) one of key roll conducted by the FOMO was too smooth the tightening and loosening of banking system liquidity following large movements of cash too and from the US Treasury. (Outward movements include disbursements like salaries or purchases, while inward movements might include tax payments or settlement of bond auctions.)
Before 2008, the Fed Open Market Operation would be "in the market" every day, buying and selling US Treasuries on Repo from the clearing banks to "square the system", so that the collective balance sheet of the US commercial banks would balance.
With the advent of QE, the Fed largely stopped doing this.
Under QE they purchased bonds from the banks, but rather than sell Repo to soak up the proceeds, they did nothing. This had the effect of leaving billions (an ultimately trillions) of dollars uninvested in commercial bank Fed clearing accounts. This is what sent the overnight Fed Funds rate to close to zero as the Fed intended.
After nearly ten years, Fed staff come and go, the daily practices that were previously normal became degraded. After a time the FOMC decides to start reversing QE and the commercial bank clearing balances are beginning to dry up.
Then came the "double witching" hour: a large Corporate tax payment to the Federal government and the settlement of a bond auction. On this particular morning unusually large amounts of dollars are passing from the banks to the Fed. During continuous settlement, the banks have to fund these payments continuously. But the Fed wasn't in the market and for the first time in 10 years liquidity was tight. At some point during the morning something like the following would have been said on bank cash desks: "We have a $5 billion payment to meet in 15 minutes: pay what you have to." So the overnight rate between banks spiked to 10%.
At this point the Fed realised that something was very wrong, and started calling dealers: "How much do you need?" and the rate returned to normal by the end of the day.
What happened was a f**k up. FOMO became complacent and was caught out.
Given that It hasn't happened since, and I judge from that that the Fed did some appropriate internal hand wringing, and maybe a few old FOMO hands were brought back to help out the new generation.
Is there any reason for on going concern? (Concern enough to prompt the buying of gold?)
With respect to the Fed. They appear to have cleaned up their mess.
But the large bond sales that contributed to the "crisis" are indicative a more serious problem in the US government. The Trump administration is spending like a drunken sailer. The US Federal deficit is out of control. Personally, I think that President Trump should be removed from office by whatever means as soon as possible for that reason, if no other.
