Posted on 06/17/2021 2:28:43 PM PDT by yesthatjallen
Fed’s Reverse Repo Soars To Stunning $756 Billion, Spikes By $230 Billion Overnight
While it received far less attention that the Fed’s dot plot, the only thing that the Fed actually did change yesterday were its administered rates, as it raised the rate on its overnight Reverse Repo facility from 0% to 0.05% and the rate on excess reserves (IOER) from 0.10% to 0.15%.
Since the RRP hike meant the GC rate would also have to increase, we noted last night that “with both market rates and RRP at .05%, there’s really no economic incentive for cash investors to move cash to the Repo market.”
Furthermore, now that the Fed is actually paying counterparties a modest but non-negligible 5bps on reserve deposits, it has made the RRP even more attractive compared to when it paid nothing (when the RRP rate was 0.0%), as it now generates a higher risk free yield than many short-term Bills.
As such, we concluded that if it was the Fed’s intention to reduce participation in its Reverse Repo facility (which the Fed specifically expanded back in March knowing what was coming) it would fail.
And wow, did it fail: moments ago we got the first Reverse Repo results from the new post-FOMC regime, and boy was it a whopper: coming at $755.8 Billion among 68 counterparties, there was a tsunami of new reserves parked at the Fed, as the total was a massive $235 billion more compared to the $520.9BN (among 53 counterparites) yesterday, the biggest one-day increase on record as every Tom, Dick and Harry rushed to collect the Fed’s free pennies.
One explanation for the surge is that as UBS noted earlier, the Fed’s adjustment “is likely to make the RRP grow even more, in part due to new usage by GSEs who can now earn more than the zero they get on their deposits at the Fed.” That, UBS added, takes reserves out of the banking system, which should slightly reduce the odds of balance sheet stress at year-end.” Separately, since this is the first TOMO with the new 5bps RRP rate, we could be seeing a temporary spike as market rates adjust to the new lower bound.
In any case, while the Fed has so far been ignoring the massive drain in reserves courtesy of its Reverse Repo, as this facility is headed toward $1 trillion, Powell may want to consider the continued fracture to the repo market and also the pockets of illiquidity that may be forming as some counterparties remain flooded with reserves while others have virtually no reserves intraday as they are locked up at the Fed until the next day.
Largest banks are purposefully sitting on trillions of dollars of excess reserves. Letting those reserves into the economy would cause massive inflation.
Now they’re getting a 50% raise in the interest they get paid for doing nothing. Not a bad deal, if you’re one of the masters in the game.
Yep, as a famous philosopher once said: “Someone is going to do some thing”.
Combine this with Gold going to the stricter requirements of Tier 1 next week, as per Basel III.
I have no idea what the TOMOREPO Index is, but that chart looks really scary.
Probably doesn't matter much at this late date. The system (aka, FED) is going down. So, those billionaire masters will be the ones holding the dollar time bomb blows up and standing up when the music stops.
We’re all gonna die.
But not from this.
We’re all gonna die.
But not from this
-—’THE SKY IS FALLING! THE SKY IS FALLING!!.....somewhere
“The system (aka, FED) is going down. So, those billionaire masters will be the ones holding the dollar time bomb blows up and standing up when the music stops.”
That wet dream will only lead to disappointment.
They can’t find creditworthy borrowers to loan the money to, so they’re pretty much stuck.
Big Banks are a scam. Lehman Bros. didn’t pay off the right guys obviously.
Central banks never die . . . they just keep adding more zeros.
It has been, agreed. Was supposed to happen years ago, but 911 and other things got in the way.
I'm very optimistic this time is the charm. Trump led the way.
NCSWIC.
Its clear that everyone was afraid to Repo during Trump, because he was bad, but now that Biden is in charge, and America’s standing has been restored, the world is willing to REPO again!
Charts are pointing up! Its all good!
“Combine this with Gold going to the stricter requirements of Tier 1 next week, as per Basel III.”
I own gold stock, could you summarize this?
Convert any “paper” gold to physical. ASAP.
NESARA is coming, and that means Deep State actors like the FED and COMEX are being dismantled, slowly but surely, as we watch.
“Paper” gold/silver are one of the ways the Deep State operates financially. They have been and are holding down the price. Today’s drops, IMHO, are a courtesy to precious metals short holders to bow out, while they still have some semblance of control.
Fed creates “money” out of thin air, “lends” it to the banks at near-zero interst...banks “deposit” it at the Fed which pays them interest.
What could go wrong?
“What could go wrong?”
I can’t think of anything...
Thanks for the info.
They can't lend it. They are just hiding it all in a place where it doesn't immediately destroy the economy, and they get paid interest on the holdings to just have it sit there.
You might think of it as money laundering on a very grand scale.
Sums up the forces in our society that I can easily live without.
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