Monday, September 26, 2022

U.S. overnight repo rate eases after Monday’s funding pressure By Reuters


© Reuters. FILE PHOTO: The Federal Reserve building is set against a blue sky in Washington, U.S., May 1, 2020. REUTERS/Kevin Lamarque

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The U.S. overnight repurchase rate fell on Tuesday, a day after funding pressures lifted the general collateral (GC) repo rate as high as 0.12% due to the settlement of last week’s Treasury auctions, traders said.

The overnight repo rate measures the cost of borrowing short-term cash using Treasuries or other debt securities as collateral.

Analysts expect repo rates to remain steady this week at 0.05% to 0.06% after a blip up on Monday.

One of many overnight repo rates, the GC rate refers to the level or figure corresponding to a basket of securities that trade normally. GC securities can be substituted for one another without changing the repo rate.

On Tuesday, the GC rate hit a high of 0.10% before closing at 0.04%, data from Curvature Securities showed. The repo rate hit a peak of 0.12% on Monday, the highest since February, and closed at 0.10%.

“No doubt the settlement of the 2-year, 5-year, and 7-year added to the pressure,” said Scott Skyrm, executive vice president in fixed income and repo at Curvature Securities in New York.

Last week, the U.S. Treasury sold $183 billion in notes of those maturities.

Skyrm said lingering month-end pressure had also pushed repo rates higher on Monday, although Friday, the last trading day of July, saw funding rates at an average of 0.04%.

Lou Crandall, chief economist at Wrightson ICAP (LON:), said Monday’s unexpected rise in repo rates attracted cash that would have otherwise gone to the Federal Reserve’s reverse repo facility.

On Tuesday, the reverse repo volume was $909.42 billion, down from $921.32 billion on Monday. On Friday, it hit a record $1.04 trillion.

The Fed launched its reverse repo program in 2013 to mop up excess cash and create a strict floor under market rates, particularly its policy rate. Eligible counterparties lend cash to the Fed in return for Treasury collateral on an overnight basis.

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