As year-end volatility in overnight funding markets eases, Wall Street is refocusing on how much longer the Federal Reserve can continue unwinding its balance sheet without causing even worse disruptions.
Traders are back to scrutinizing funds in the Fed’s overnight reverse repurchase agreement facility — or RRP — where eligible counterparties can park excess cash. Those users have been pulling money from the facility to capitalize on higher yields elsewhere. However, use of the facility is dropping (read the NY Fed blog on this).