The Fed’s reverse repo use just hit a fresh record of $2.4 trillion — why that’s one of the clearest ‘bad signs’ for the market
There’s been yet another record-high uptake in the amount of cash investors are stashing in a major Federal Reserve facility.
The Fed parks excess cash reserves from banks in the Overnight Reverse Repurchase Facility. A reverse repo, or RRP, helps the central bank conduct monetary policy by selling securities to counterparties to be bought back for a higher price later on — essentially working as a short-term loan.
The RRP facility was hit with $2.367 trillion on Sep. 28, higher than the previous record of $2.359 trillion set on Sep. 22.
Investors are sticking with ol’ reliable cash in order to ride out the current economic uncertainty — but it doesn’t seem as though the market will return to normal anytime soon.
Invest your spare change and turn your pennies into a productive portfolio
Mitt Romney says a billionaire tax will trigger demand for these two physical assets
You could be the landlord of Walmart, Whole Foods and Kroger
Investors are tucking their cash away for safe-keeping
Rising interest rates have seen investors pull back on taking risks — the S&P 500 has plunged for three consecutive quarters — which means they’re now turning to avenues with lower risk and safer returns.
Enter cash and cash-like assets. Investments like money market funds, which are fixed income mutual funds that invest in short-term, low-risk debt securities, have been a safe space for investors during periods of high volatility.
The Treasury Department has been shrinking its cash balance from about $1.6 trillion at the beginning of 2022, to around $300 billion (returning to pre-pandemic levels). The drop in bill issuance means investors have needed a place to put their spare cash — and that place has been the RRP facility.
Since March, experts have been projecting that RRP usage would rise in order to help normalize cash supply levels.
Stay on top of the markets: Don’t miss the latest news and a steady flow of actionable ideas from Wall Street’s top firms. Sign up now for the MoneyWise Investing newsletter for free.
Then, in July, in explaining the increase in RRP participation, the Fed pointed to larger investments from money market funds and ongoing reductions in Treasury bill issuances, which impacted the yields of other investment options available to those funds.
Why this is a bad sign for the market
The Fed is currently paying an overnight rate of 3.05% as of Sep. 22 — the highest yield since 2013. It increased from 2.30% after the central bank recently lifted interest rates by 0.75 percentage points.
An increase in the reverse repo rate restricts cash supply and helps to correct inflation.
However, whenever banks and other financial institutions have turned to the Fed’s major lending facilities in the past, this has been a clear indicator of economic instability. It was strains on the repo market in back 2007 that brought about the financial panic of that year that led into the 2008 financial crisis.
Uptake in the RRP facility could continue to increase depending on the supply of short-term investments and demand from money market funds, Fed officials noted in the July meeting.
Bank of America strategists recently reported that investor sentiment is the worst it’s been since 2008. And the bank anticipates that cash and commodities will continue to outperform bonds and stocks.
For the week through Sep. 21, cash had inflows of $30.3 billion, according to EPFR Global data.
Experts forecast the market will remain volatile for the rest of the year, while fears of a recession next year continue to loom, further spooking investors.
What to read next
House Democrats have officially drafted a bill that bans politicians, judges, their spouses and children from trading stocks — but here’s what they’re still allowed to own and do
Billionaire Carl Icahn warns the ‘worst is yet to come’ — but when an audience member asked him for stock picks, he offered these 2 ‘cheap and viable’ names
Do you fall in America’s lower, middle, or upper class? How your income stacks up
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
The big reason Florida insurance companies are failing isn’t just hurricane risk – it’s fraud and lawsuits
Hurricane Ian’s widespread damage is another disaster for Florida’s already shaky insurance industry. Even though home insurance rates in Florida are nearly triple the national average, insurers have been losing money. Six have failed since January 2022. Now, insured losses from Ian are estimated to exceed US$40 billion Hurricane risk might seem like the obvious problem, but there is a more insidious driver in this financial train wreck. Finance professor Shahid Hamid, who directs the Laboratory
DOJ Wins Faster Schedule for Mar-a-Lago Special Master Appeal
(Bloomberg) — A federal appeals court granted the Justice Department’s request to expedite its challenge to a Florida judge’s appointment of a so-called special master to review thousands of White House documents seized from Donald Trump’s Mar-a-Lago estate.Most Read from BloombergMusk Revives $44 Billion Twitter Bid, Aiming to Avoid TrialLoretta Lynn, Coal Miner’s Daughter And Country Queen, DiesElon Musk Sets Off Uproar in Ukraine by Tweeting His ‘Peace’ PlanMar-a-Lago Documents Included Pard
The New Voice of Ukraine
Pentagon does not confirm rumors of transport of Russian nuclear weapons to Ukrainian border
The Pentagon could not confirm rumors of Russian forces transporting nuclear weapons to the Ukrainian border by rail, U.S. Deputy Assistant Secretary of Defense Laura Cooper said on Oct. 5, according to the U.S. state-owned Voice of America news outlet.
Exclusive-Germany in talks to provide more state aid for gas imports – sources
FRANKFURT (Reuters) -Germany is in advanced talks to provide billions of euros in additional guarantees to Sefe, formerly Gazprom Germania, to ensure the company can honour a major contract to supply gas to German importer VNG, two people familiar with the matter said. Under the deal, Sefe would receive additional government-backed credit lines to fulfil a contract under which it supplies 65 terawatt hours (TWh) of gas to VNG – part of German utility EnBW – each year, the people said. One person with knowledge of the discussions said the state could give a guarantee that could, in turn, underpin a loan to Sefe from state bank KfW.
Tom Brady & Gisele Bündchen’s ‘Magnitude of Wealth’ Could Make for a Contentious Divorce
Now that Tom Brady and Gisele Bündchen have reportedly lined up divorce lawyers, things are getting serious when it comes to their marital troubles. With both of them having high-powered careers — his in the NFL and hers in the fashion industry — there is also big money at stake. Coming into the marriage, it was […]
Exclusive-U.S. EPA expected to propose electric cars be eligible for renewable fuel credits -sources
NEW YORK (Reuters) -The U.S. Environmental Protection Agency is expected to propose that electric vehicles be eligible for renewable fuel credits in an upcoming proposal on biofuel blending mandates, three sources familiar with the matter said. The inclusion of electric vehicles into the federal Renewable Fuel Standard (RFS) would be one of the largest changes to the program since it began more than a decade ago. The EPA is expected to send the proposal, which will address mandates for after 2022, to the White House for approval by the end of next week, two of the sources said.
Court agrees to fast-track DOJ’s appeal in Trump special master case
A federal appeals court on Wednesday agreed to fast-track an appeal by the Department of Justice (DOJ) over the appointment of a special master to review thousands of pages of government records seized this summer from former President Trump’s Florida home. The one-page order by the U.S. Court of Appeals for the 11th Circuit sets…