Drop In ON RRP Uptake Expected To Be Temporary

The unexpectedly large drop in ON RRP takeup yesterday (by $78.4B to $2.087T, the biggest one-day drop since early October and to a level not seen since June) was attributable to multiple factors.

• Usage dropped because in part due to mid-quarter Treasury settlements, which pulled cash away from the facility.
• Another one-off factor was cash market repositioning, after the US CPI release last week sparked a significant Tsy rally. That has boosted repo rates, making that a more attractive relative option vs ON RRP.
• Broad expectations are that these factors will fade by the end of the week, with ON RRP picking up again.
• The 6-week outlook is for even more uptake: Wrightson ICAP expects ON RRP volume to move higher by late December, peaking close to the record set in September of $2.426trn.