Record U.S. reverse repos highlight problem of investing excess cash

Reverse repos are conducted by the New York Fed's Open Market Trading Desk. In a reverse repo, market participants lend cash to the Fed, usually overnight, at an interest rate of 80 basis points, in exchange for Treasuries or other government securities, with a promise to buy them back.

The Fed's reverse repo window attracted a record $2.045 trillion on Monday, as financial institutions continued to flood the facility with liquidity in exchange for Treasury collateral. Monday's volume was one of a string of record highs for RRPs.This compares with the current 51 basis point yield of U.S. one-month bills , whose longer maturity carries more risk.

Cash from Fannie Mae and Freddie Mac typically enters the repo market on the 18th of each month when they receive principal and interest mortgage payments from home lenders. GSEs then pay mortgage-backed security holders around the 24th to the 25th of the month, withdrawing that cash from the repo market to pay MBS holders.As the U.S. budget deficit shrinks amid robust tax revenues, the Treasury will have to aggressively shrink bill issuance through Sept. 30, analysts said.

The soaring RRP volume does not seem to be a concern for the Fed given that quantitative tightening will only begin next month. But it could be a problem if demand persists even after the Fed's asset portfolio starts to shrink, said Lou Crandall, chief economist at money market research firm Wrightson.

United States Latest News, United States Headlines

Similar News:You can also read news stories similar to this one that we have collected from other news sources.

Biden considers tapping emergency diesel reserve with prices near record highWhite House officials have prepared an emergency declaration that would allow President Biden to release diesel from the Northeast Home Heating Oil Reserve as prices soar. Too soon. Needs to wait til September to help the mid terms That isn’t going to help at all Lol. The only 'panic' is among Fox viewers. Because you are *telling* them to panic. The rest of us understand that Ukraine is fighting for OUR freedom, too, and freedom isn't free.
Source: FoxBusiness - 🏆 458. / 53 Read more »

Oil edges higher on fuel demand but Chinese demand still a concernOil ticks higher Tuesday morning as investors weigh tight supplies of fuel versus concerns around China COVID-19 lockdowns.
Source: MarketWatch - 🏆 3. / 97 Read more »

Copper retreats from two-week top on concerns over China demandCopper prices on COMEX ease from a 12-day high as market sentiment dwindles amid mixed clues during early Monday. That said, the Copper futures on COM
Source: FXStreetNews - 🏆 14. / 72 Read more »

San Diego Food Bank Demand Matching Pandemic PeakThe CEO of the San Diego Food Bank told NBC 7’s Brooke Martell that inflation is driving food distribution back to the levels seen during the pandemic.
Source: nbcsandiego - 🏆 524. / 51 Read more »

WSJ News Exclusive | Monkeypox Outbreak Stokes Global Demand for Smallpox VaccineThe maker of a smallpox vaccine that works against monkeypox is ramping up production amid a widening outbreak of the rare viral disease that has reached at least a dozen countries
Source: WSJhealth - 🏆 413. / 53 Read more »

South Bay police department unveils new electric patrol cars - KCBS Radio: On-Demand - Omny.fmThe Menlo Park Police Department has taken delivery of what will be its first three electric patrol cars. KCBS Radio's Margie Shafer reports from Menlo Park, police volunteers will be part of a pilot program to test the Tesla Y's as patrol vehicles.
Source: KCBSRadio - 🏆 516. / 51 Read more »