Fed’s reverse repo facility sees demand tumble to $1.8 trillion as Treasury bill deluge refills U.S. coffers – MarketWatch
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In One Chart
Last Updated: July 10, 2023 at 4:39 p.m. ET First Published: July 10, 2023 at 12:41 p.m. ET
6-month Treasury bill yields climb to 5.5%
Demand for Federal Reserve’s overnight reverse repo facility continues to drop as new Treasury bill issuance is snapped up by investors enticed by higher yields.
Leonardo Munoz/Agence France-Presse/Getty Images
[]Demand for the Federal Reserve’s popular overnight reverse repo facility has dropped to about $1.8 trillion daily from its near $2.6 trillion peak in December in the wake of the June U.S. debt-ceiling deal.
[]The Fed facility has been a key cog in the plumbing of financial markets for the past two years as global central banks responded to the COVID pandemic by slashing benchmark rates and conducting asset purchases to prop up wobbling economies.
[]The program became a haven for money-market funds and other institutional investors looking to earn risk-free yield, with demand hitting a peak of nearly $2.6 trillion overnight in December 2022 as markets were awash in liquidity.
[]Demand again spiked in March 2023 (see chart) after the collapse of Silicon Valley Bank led to fears of a broader regional banking crisis. But daily usage retreated once the Fed rolled out another emergency facility for banks to tap for liquidity to avoid forced asset sales, and as the June U.S. debt-ceiling deal unleashed a flood of Treasury issuance at some of the highest yields in years.
Demand for Fed overnight reverse repo facility tumbles to about $1.8 trillion
New York Fed, Barclays Research []The continued drop in demand for the overnight Fed program comes as the central bank’s aggressive pace of rate hikes has prompted higher short-term Treasury yields.
[]The 6-month Treasury bill rate TMUBMUSD06M, 5.518% was at 5.5% on Monday, according to FactSet, while the one-year Treasury yield TMUBMUSD01Y, 5.410% was at 5.4% and the 2-year rate TMUBMUSD02Y, 4.889% was at 4.85%. The benchmark 10-year Treasury yield was near 4%.
[]Related: As money-market funds swell, critics say fat yields are taxpayer subsidized
[]The overnight rate for the Fed’s reverse repo has climbed to 5.05%, in the range of the central bank’s target 5%-5.25% level to fight inflation. Cleveland Fed President Loretta Mester said Monday that the central bank likely needs to raise rates a bit more to drive inflation down to its 2% annual target.
[]The Treasury Department has unleashed a deluge of new bills to restock its coffers run low by the protracted fight over raising the U.S. debt ceiling. The Treasury’s cash balance has since increased to over $500 billion, according to Barclays researchers.
[]Stocks closed higher Monday as investors awaited inflation data on Wednesday from the monthly consumer-price index. The Dow DJIA, +0.70% gained 209 points, or 0.6%, on Monday, while the S&P 500 index SPX, +0.46% and Nasdaq Composite Index COMP, +0.38% closed up 0.2%.
[]Read: Inflation rates will keep cooling, consumers say — except in one notable area
Howard Marks says he’s made five great market calls in his career. Here’s how he did it.
[]Billionaire investor Howard Marks shared some investment wisdom with clients, including what he calls the “cardinal sin” of investing and how to avoid it.
[]Joy Wiltermuth is a news editor and senior markets reporter based in San Francisco.
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