[ad_1]
Investors on Thursday held a record amount of cash at a nightly facility in the Federal Reserve, after the central bank began paying interest on the money to prevent negative interest rates from taking advantage of parts of the U.S. financial markets.
The change, announced after Wednesday ‘s monetary policy meeting, responded to concerns money market funds and banks that have struggled to find places to invest with positive returns.
According to him, about 70 market participants parked $ 756 billion in the Fed through its reverse repurchase program data from the New York branch of the central bank.
That’s about $ 172 billion more than the previous record of the week, and $ 235 billion more than on Wednesday, when only 53 groups took advantage of the facility.
“The sharp rise in usage shows how hungry investors are for profitability” in short-term debt, Gennadiy Goldberg told TD Securities.
The Fed said it was raising the RRP rate to 0.05% from zero to support the “smooth running of short-term funding markets,” one of two technical adjustments it made Wednesday. It also increased the interest it pays on excess reserves, which banks deposit with the Fed, from 0.1% to 0.15%.
Partly as a result of the monetary and fiscal stimulus of the US economy, cash has been poured into money market funds that invest in short-term government securities. Rising demand for these securities has sometimes pushed yields below zero this year and has threatened the viability of the $ 4 billion industry.
The rate at which investors exchange Treasury assets and other high-quality collateral for cash in the replacement market (another basic source of income for money market funds) has also fallen negatively.
Wednesday’s adjustments helped raise those rates from ultra-low levels. The federal funds rate, the main type of policy used by the Fed, also rose 0.08%, closer to the center of the central bank’s target range of 0% to 0.25%, as it fell to earlier this year to 0.04%.
Fed Chairman Jay Powell expressed little concern about the growing use of RRP facilities at the post-meeting press conference, which indicated that it was working as planned.
“We believe the reverse replacement facility is doing what it is supposed to do to provide land below money market rates and keep the federal funds rate within its reach.”
Scott Skyrm, Curvature Securities replacement operator, said the rate adjustments announced Wednesday would help the margin, but RRP demand is likely to remain high. The Fed’s commitment to buy $ 120 billion in public debt each month to stimulate the economy continues to exacerbate the mismatch between the amount of cash a home seeks and the number of feasible securities to buy, he said.
John Canavan, an analyst at Oxford Economics, said the scale of the increase in RRP usage on Thursday had been a surprise.
“This is unlikely to be the end of the increase, and there is a good chance that the front-end cash flood will push RRP demand by more than $ 1 million at some point.”
[ad_2]
Source link
