Both the Wall Street Journal and Bloomberg have picked up on Zoltan Pozsar’s most recent article, which warns of coming chaos from an accumulation of cash in the Federal Reserve’s reverse repurchase facility (RRP)

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www.efinancialcareers.com/news/2021/07/zoltan-pozsar-credit-suisse

Pozsar estimates that use of the facility has jumped by $300bn since the Fed increased the interest rate on the RRP from 0 to 5bps last month: the higher rate means it no longer makes any sense to hold lower yielding Treasury bills and Pozsar thinks money will continue to flow into the RRP throughout the summer, with up to $1.3 trillion being switched out of Treasury bills by August. This in turn could cause issues for the $400bn of Treasury bills that Pozsar calculates will still need to be bought by banks over the next two months, and which are likely to be purchased with non-operating deposits at banks like JPMorgan and Bank of America, which could in turn have curious effects on the markets as banks have less to put into FX swaps, longer dated Treasury bills or mortgaged backed securities.

 

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h/t mark000

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