ON RRP Drop Thursday May Have Been Illusory, But Trend Is Down (1/2)

The decline in the overnight reverse repo facility this week is clearly linked to takeup of rising Fed bill issuance - but there may be obsucuring short-term factors at play.

• The $117B fall in ON RRP yesterday brought the total below $2T for the first time since April 2022 and marked a $262B fall in the month so far.
• The Treasury's General Account (TGA) at the Fed meanwhile is up $86B over the same period.
• With net bill issuance nearing $200B so far in June, the data suggest that the "benign" scenario for reserve scarcity may be playing out, with bill purchases being made from funds parked at the ON RRP facility, rather than being siphoned off from bank reserves.
• However, JPMorgan points out that there could be seasonal factors at play, with a similar drawdown in ON RRP on June 15 in 2021 and 2022 ($74B in 2021 and $61B in 2022). That coincides with the tax deadline when money market fund assets tend to decline. As such, ON RRP's drop may be somewhat exaggerated, and could rebound in the subsequent days.
• However, the overall trend is still almost certainly lower.