(Bloomberg) – The amount of money parked at a major Federal Reserve facility has risen to an all-time high, crossing the 2 trillion milestone for the first time as investors struggled to find a place to invest their cash in the short term.
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Money-market funds continue to accumulate the benefits of the Fed’s overnight reversal agreement, even as financial authorities raise interest rates and plan to open their huge balance sheets next month. Yet there is still an imbalance in the treasury-bill market that has been exacerbated by the recent strong tax collection in the United States, and as a result the so-called RRP facility remains a haven for money markets with very few investment options.
Even JPMorgan Chase & Co. CEO Jamie Dimon said Monday at the firm’s Investors’ Day that the Fed will have to tighten almost so-called quantitative easing because there is too much liquidity.
On Monday, 94 participants placed a total of $ 2.045 trillion in RRP facilities, where rivals could keep cash with the central bank. The previous record set on Friday was $ 1.988 trillion.
“The Treasury is still cutting bill supply and is driving the market firmly into the only refuge for RRP facilities,” said Gennadiy Goldberg, a senior U.S. interest rate strategist at TD Securities. “The big indication is that if RRP usage is high, QT will quickly drain the reserve from the system at the beginning of the runoff.”
Following this week’s Treasury bill settlement, the department will pay about $ 372 billion in supplies from the beginning of March, data show. Wells Fargo & Co. strategists estimate that billing in the second half of the year should be somewhat positive, although it will not be enough to “fill the void left by the dollar in search of a safe and liquid home,” Zachary Griffiths and Michael Puglis wrote in a note.
However, Fed officials said demand for the facility could rise after interest rates rise, due to the fact that funds can pass faster at higher interest rates than banks. This is because banks raise the deposit rate less, which will encourage cash flow in the money market.
Once the Fed’s so-called quantitative austerity measures begin to remove liquidity from the financial system, a consensus has emerged among Wall Street strategists that the RRP will expedite the withdrawal of cash from bank deposits.
The expectation is related to the receipt of taxes which has raised about $ 1 trillion in cash in the central bank’s treasury account. The Treasury General Account, or TGA, acts as the government’s checking account in the Fed. When the Treasury increases its cash balance, it draws reserves from the system and vice versa. As a result, the outstanding bank reserve balance fell by $ 466 billion in the week ended April 20, the biggest weekly fall on record, Fed data shows.
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