For the first time in over two years, funds at the Federal Reserve's overnight reverse repurchase agreement facility fell below $1 trillion today. A total of 94 participants deposited $993 billion, marking a significant decrease from the record $2.554 trillion on December 30, 2022, and the lowest since August 2021.
The Treasury's fresh bill issuance has attracted short-term investors, reducing demand for the facility. With the debt ceiling suspended until 2025, money-market funds have been buying these bills in anticipation of the end of the Fed's interest-rate hiking cycle. This shift has allowed them to move their record assets into these bills, whose interest rates now surpass the US central bank facility's yield of 5.30%.
However, Wall Street strategists are expressing concerns about potential implications of this trend. As usage of the Fed's facility diminishes, there could be a halt in its quantitative tightening program due to worries about excess liquidity being drained and bank reserves reaching scarcity.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.