A “Tsunami of Cash” has pushed reverse repo to higher usage and at ZERO rates

(Bloomberg) — The amount of cash sloshing around in U.S. dollar funding markets looks unlikely to abate anytime soon and that’s set to put downward pressure on short-term rates until next year unless officials act to alter the situation.

That’s the view of strategists at Bank of America Corp., who foresee further increases in usage of the Federal Reserve’s reverse repurchase agreement operation — a facility that’s become a go-to place for parking cash. While it offers absolutely zero yield, the facility at least doesn’t charge investors for the privilege of keeping cash there, which is effectively what happens when yields go negative.

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That’s something that has happened in other parts of the money markets, with the abundance of cash driving down yields on instruments ranging from repurchase agreements to Treasury bills, in some cases below zero. And that in turn has fueled demand at the so-called RRP facility, which on Wednesday surged to $450 billion, the third-highest on record.



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