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Adjusting to Re-Priced Reverse-Repo Facility

STIR

FRBNY EFFR for prior session:

  • Daily Effective Fed Funds Rate: 0.10% volume: $64B
  • Daily Overnight Bank Funding Rate: 0.08% volume: $226B
Earlier Repo Reference Rates:
  • Secured Overnight Financing Rate (SOFR): 0.05%, $998B
  • Broad General Collateral Rate (BGCR): 0.05%, $393B
  • Tri-Party General Collateral Rate (TGCR): 0.05%, $347B
  • (rate, volume levels reflect prior session)
Reminder: The Fed RRP surged to record high $756B yesterday after the Fed's technical adjustment to IOER from 0.10% to 0.15%
  • Credit Suisse contributor Zoltan Pozsar says the repriced facility as "too generous" and will quickly become a "big problem for banks" as the "banking system is going from being asset constrained (deposits flooding in, but nowhere to lend them but to the Fed), to being liability constrained (deposits slipping away and nowhere to replace them but in the money market)."
  • "So the sterilization of reserves begins, and so the o/n RRP facility turns from a largely passive tool that provided an interest rate floor to the deposits that large banks have been pushing away, into an active tool that "sucks" the deposits away that banks decided to retain."
  • Quick-take: Zoltan sees LIBOR-OIS re-widening "unless the Fed lowers the o/n RRP rate!"
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