Repo Ructions And The CLO Boom: Where’s The Toxic Waste The Fed’s Bailing Out?

In the meantime, with a little imagination, today’s problems in the repo market could be a warning that CLOs are turning to toxic waste, and, as a result, are developing into the next financial crisis.  While it is still unclear, it is very possible that a bank or financial institution did not have sufficient high quality collateral and were frozen out of private repo markets.  Hence, the dramatic rate spike followed by Fed supplied liquidity.