BofA also believes the.......>

US TSYS/OVERNIGHT REPO: BofA also believes the adjustment to minimum repo rates

last Thursday is part of a shift in repo towards a backstop role, more

particularly, a step to establish a standing repo facility.

- BofA expects last week's adjustment to drive tighter funding conditions into

quarter-end, with upward pressure on O/N GC repo and Fed funds by 3-5bps, and

modest further tightening of bills-OIS and 2Y spreads.

- Re the question "why now" for the rate adjustment, esp ahead of tax season

etc, BofA suggests the Fed believes its role in repo should depend on the

broader market circumstances and the reserve regime in which it operates - the

latter of which is currently ample.

- BofA sees another 5bps adjustment coming in July, by way of the O/N RP rate

transitioning into a backstop dealer standing repo facility with a rate of 20 or

25bps (whether it goes to the higher of those rates depends how the Fed feels

about it being set in line with the discount window rate).