Citi on Repo Rates

Feb 25 14

Citi's Andrew Hollenhorst wrote, "Repo rates refuse to rise", Friday, which said, "Despite two weeks of close to $70 billion of positive net T-bill issuance, repo rates have remained pegged against the fixed-rate offered by the Fed's overnight reverse repo facility (ON RRP). This reflects the fact that repo rates would likely have been trading at lower levels absent the ON RRP floor.... We think the majority of positive net issuance for this tax refund season is over and that Treasury is unlikely to need additional cash management bills. This should keep repo rates below 10bp through mid-April, although they may rise a few basis points above current levels. After cash management bills mature on April 17 and 24, we expect repo rates to return to close to the ON RRP floor rate.... We think the Fed will increase allotment sizes for the ON RRP facility over the course of 2014. The Fed will likely vary the rate between 0-5bp, the currently approved range, but will not take rates above 5bp in 2014."

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