$1T Overnight Reverse Repo Takeups Likely To Persist Into Fall

System reserves continue to climb, rising by $81.4B in the week to Weds Aug 11, and $182.6B over the past 4 weeks. Fed net asset purchases have totaled $100B over the past 4 weeks, but the vast majority of the reserves created have been withdrawn into reverse repo (total $85B).

• The other big contributor to reserve growth has been the drawdown in the Treasury General Account, amounting to $57.7B last week, and $270.0B over the past four weeks.

Source: Federal Reserve, MNI

• The domestic ON RRP facility has eclipsed $1T again and it looks likely that it will stay elevated at or above for the foreseeable future as Fed asset purchases continue (on a daily basis, ON RRP hit a record $1.087T Thursday).
• The TGA is probably going to keep shrinking towards $200B toward end-October (as estimated by Wrightson ICAP for one), marking another $200B+ addition to system reserves in addition to $200B+ in net Fed asset purchases in that period. Absent the ON RRP, reserves would likely rise past $4.5T by the middle of Q4 (from $4.1T now).
• Another potential factor on ON RRP growth noted by BofA is risk aversion toward Tbills as US debt limit constraints and thus default risk approach in the fall; this could drive money market funds into ON RRP.