MNI BRIEF: Negative Repo Trades Appear Technical- Fed's Logan

Modest volumes of repo that have been trading below zero appear technical in nature and the Fed's overnight reverse repo facility has provided an effective floor on rates, New York Fed's market chief Lorie Logan said Thursday.

Recent negative trades below zero in interdealer markets, as captured in the SOFR first percentile, appear to be technical in nature, driven in part by the value that dealers place on the ability to centrally clear the transactions and net their balance sheet exposures, Logan said in prepared remarks for a speech at a SIFMA webinar, suggesting patience. "However, we will continue to monitor money markets closely and make adjustments to ON RRP operations as needed," she added, also repeating previous comments that "undue downward pressure" on overnight rates would lead the central bank to adjust administered rates.

The ON RRP rates is currently set at zero and IOER is currently set at 10 bps, well below the top of the Fed's target range of 25 bps. The effective fed funds rate has hovered around 7 bps for months. Former officials have told MNI the Fed is likely to be patient in making adjustments to IOER, adding that changes to the ON RRP facility may be a more appropriate facility to help deal with market conditions due to difference between unsecured and secured rates.