Barclays strategist Joseph Abate said in a reportbestcryptogamesmobile, the Federal Reserve Overnight Reverse Repo (RRP) ToolbestcryptogamesmobileThe balance has stabilized, which could lead to a scarcity of reserves later this year.
Since April, RRP usage has been hovering around $450 billion. This may be caused by temporary factors such as the flow of tax funds, as well as the upcoming money-market fund reform and policy prospects.
As institutional high-quality funds convert to funds that only invest in government bonds, or investors withdraw, the balance of government bond funds will increase, boosting demand for U.S. Treasuries, agency bonds and repurchase agreements.
As the Fed moves closer to easing policy and bond yields with three-month and shorter maturities fall, portfolio allocations may change and more funds may shift away from RRP to repurchase.
However, Abate said that means the demand outlook for RRP "may become more rugged and not necessarily plummet as it has in the past 12 months."
The uncertain outlook for RRP means bank reserves could fall to 2.2 per cent by Decemberbestcryptogamesmobile.8 trillion-2bestcryptogamesmobile.9 trillion US dollars, especially if use of the tool remains around US$300 billion to US$400 billion.
"Our sense is that even without signs of interest rate pressure, this is close to the minimum comfortable reserve level for banks (with little cushion) when the Fed ends quantitative tightening directly," Abate wrote.
