Repo Opening Below Zero Risks Driving Up Demand for Fed Facility (Europe Has 20 Nations With Negative 2Y Yields)

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by confoundedinterest17

(Bloomberg) — The rate on overnight general collateral repurchase agreements opened at negative levels Thursday, an indication of the unrelenting flood of cash into funding markets. It may also portend another increase in volume at the Federal Reserve’s reverse repo facility.

The rate on overnight GC repo opened at -0.01% and has held steady since, according to Oxford Economics; bid-ask was 0%/-0.2% as of 7:42am in New York, according to ICAP data

RRP usage surged to $450 billion on Wednesday, the highest since December 2016 and the third-most since the facility started in September 2013, and up from $433 billion in the prior session

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Wrightson ICAP sees RRP volume rising to around $470 billion Thursday, though the risks are “still tilted to the high side”

The glut at the front-end has been spurred by the central bank’s ongoing asset-purchase program, commonly referred to as quantitative easing, as well the drawdown of the Treasury’s general account. The latter has been driven by the looming debt-ceiling reinstatement, which is due to take place at the end of July, and the flow of pandemic stimulus funds to taxpayers

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Federal relief payments to state and local municipalities are also adding to the glut, and that is being exacerbated as regulatory constraints encourage banks to turn away deposits, directing that cash into money-market funds

3 month LIBOR keeps diving towards 0%.

Switching to Europe, we see that 20 nations have 2 year sovereign yields that a negative.





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