Investors rallied a record amount of cash overnight at the Federal Reserve on Thursday after the central bank began paying interest rates to prevent negative interest rates in some parts of the US financial markets.
The change, announced after its monetary policy meeting on Wednesday, came in response to concerns. Money market funds : Banks that have struggled to find positive return on investment.
Nearly 70 market participants invested $ 756 billion in the Fed through its counter-repurchase program, according to data: from the New York branch of the Central Bank.
That’s about $ 172 billion more than the previous record at the beginning of the week, և $ 235 billion more than on Wednesday, when only 53 groups used the facility.
“The sharp rise in utilization shows how hungry investors are for short-term debt,” says Gennady Goldberg of TD Securities.
The Fed said it would cut its RRP rate from zero to 0.05 percent to support “short-term financing markets”, one of two technical adjustments made on Wednesday. It also raised interest rates on excess reserves held by banks to the Fed from 0.1 percent to 0.15 percent.
In part, as a result of monetary and fiscal stimulus to the US economy, cash is being poured into money market funds that invest in short-term government securities. The big wave of demand for these securities has sometimes brought below zero, threatening the viability of the industry with $ 4 tons.
The interest rate at which investors in the repo market exchange treasuries and other high-quality collateral in the repo market, another major source of income for money market funds, also fell negatively.
Wednesday’s adjustments helped push those rates down from their lows. The federal funds rate, the main policy rate used by the Federal Reserve, also rose to 0.08 percent, close to half of the central bank’s target range of 0 to 0.25 percent, falling to 0.04 percent earlier this year.
Ay Powell, President of the Fed, expressed: At the press conference after his meeting, he had little concern about the use of the RRP facility, noting that it was working as intended.
“We believe that the reverse repo facility is doing what it should have done, which is to allocate money market rates and keep the federal funds rate well within its range.”
Curvature Securities repo trader Scott Scarm says Wednesday’s exchange rate adjustments will help the margin, but RRP demand is likely to remain high. The Fed’s commitment to buy $ 120 billion a month in government debt to boost its economy continues to deepen the mismatch between the amount of cash it seeks to buy a home and the amount of securities it can buy.
Oxford Economics analyst John on Canavan says the rise in RRP usage on Thursday was surprising.
“This will probably not be the end of the rise in prices. There is a good chance that the cash flood will at some point push RRP demand above $ 1t.”