Reuters reported that the New York Federal Reserve said eligible firms parked the largest amount of cash in its reverse repo facility since late June, in a move almost certainly tied to the end of the third quarter.
The regional Fed bank said $465.6 billion was placed in its reverse repo facility, the highest level of inflows since the end of the last quarter, when on June 28 reverse repo usage stood at $664.6 billion.
Advertisement · Scroll to continue
The overall level of the reverse repo facility has been falling for some time as the Fed has removed pandemic-era stimulus by allowing Treasury and mortgage securities it owns to expire and not be replaced. That’s taken overall Fed holdings down from a peak of around $9 trillion in the summer of 2022 to the current level of about $7.1 trillion.
Most of the Fed’s balance sheet reduction so far has taken place on the back of cash leaving the reverse repo facility in search of better private market rates. The reserve repo facility, after seeing effectively zero inflows at the start of 2021, peaked at just over $2.6 trillion at the end of 2022.
Bloomberg reported that US funding market volatility surged as Wall Street weighs Fed’s quantitative tightening program in a sign that liquidity pressures are building. Secured Overnight Financing Rate jumped to 4.96% on the last day of Q3 and sponsored repo activity rose to record $1.78 trillion, according to DTCC.