Fed Reverse Repo Use in 2021

Fed Reverse Repo Use Tops Half a Trillion Dollars for First Time:

Demand for a large Fed fund used to manage short-term interest rates has risen to more than half a billion dollars for the first time, which could mean an avalanche of money seeking a home.

Fifty-nine participants parked a total of $ 502.9 billion in the overnight repurchase service, where counterparties, such as money market funds, can deposit money with the central bank. It shows data from the New York Fed on Tuesday for the previous record volume of $ 497.4 billion.

money market funds:

While the Fed’s supply is below 0%, demand is increasing as US dollar markets are flooded with increased liquidity. This was partly due to the central bank’s asset purchases and withdrawals from the general treasury account, which pushed the reserves into the system.

At the same time, legal restrictions also encourage banks to refuse deposits and send that money to money market funds.

“No changes such as the easing of regulatory restrictions, expansion of the balance sheet, and the continued withdrawal of the TGA will apply to the RRP framework until the end of July,” said Jonathan Suhn, strategist at Credit Suisse. Quantitative easing could double by $ 840 billion by the end of the year.

The massive accumulation of dollars in the financial market is also adjusting the debate on the adjustment of so-called managed rates – the interest on excess reserves and the return of the RRP line – to the lower short-term interest rates. from the beginning.

In the minutes of the last Fed meeting issued last month, the system’s account manager noted that the downward pressure on overnight rates could lead to conditions in the coming months that justify considering a moderate rate adjustment.

Faced with cash flow in the financial markets and zero interest rates, investors began to shift the curve in search of higher returns, as evidenced by rising government bonds and strong indirect supply during this week of the verdict and auction in December.

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