Wrightson ICAP: ON RRP Increase A Good Surprise

The Fed's announcement yesterday that it would increase the per-counterparty limit on ON RRP from $30bn to $80bn surprised Wrightson ICAP "in a good way".

• While they thought there were good odds the Fed would make such a move incoming months, "our guess was that it would not see a need to move pre-emptively… our guess had been that they would wait until RRP volumes actually started to rise before making any adjustments."
• This could reduce uncertainty surrounding short-end rates: "For market participants who did not have direct access to the facility themselves, the fear that the largest money funds might find their usage capped by an artificial counterparty limit was a reason to worry that yields on bills and other short-term instruments might in fact turn negative. The knowledge that the major players in the money fund industry will have unfettered access to the facility makes other market participants less likely to factor the risk of significantly negative rates into their planning."