Bloomberg reports that leverage across the financial system has reached record levels, spanning leveraged ETFs, hedge fund gross exposures, bank balance sheets, and money market fund shadow leverage. The concentration of risk is seen as systemic, with potential for rapid deleveraging cascades if volatility spikes, similar to dynamics observed in March 2020 and September 2022 gilt market stress.
For Armada's traditional repo desk, hedge funds and MMFs are core counterparty segments. Elevated leverage means that a market dislocation could trigger simultaneous margin calls and collateral liquidations across multiple counterparties, compressing repo market liquidity precisely when Armada would need it most. Mid-quarter balance sheet stress and G-SIB surcharge calculations add an additional constraint on dealer intermediation capacity during such episodes.