The glut of cash in U.S. interest-rate markets pushed the amount of money that investors are parking at a major central bank facility to yet another all-time high.
Eighty-two participants on Tuesday placed $1.19 trillion at the Federal Reserve’s overnight reverse repurchase agreement facility, in which counterparties like money-market funds can place cash with the central bank. That surpassed the previous record volume of $1.147 trillion from Aug. 25, New York Fed data show.
While usage is expected to recede on Wednesday since its the beginning of a new month, demand will eventually move higher as the deluge shows few signs of slowing.
The Fed’s ongoing asset purchases and Treasury’s drawdown of its cash balance are pushing more reserves into the system, causing liquidity to swell. These growing imbalances in front end markets have helped keep downward pressure on short-end rates, raising the likelihood that RRP usage will rise further.
In anticipation of the cash surge distorting funding markets, Federal Reserve policy makers this year have taken a series of steps to increase the capacity of the RRP, including boosting its per counterparty limits to $80 billion each, and adjusting the criteria to make the facility more accessible to more money funds. It even raised its administered rates at its June gathering by 5 basis points to help support the smooth functioning of short-term funding markets.