The Federal Reserve Bank of New York began publishing more information on its RRP program last week, reports Reuters in the piece, "U.S. Fed releases more data on reverse repos operations". They write, "Among the new details released were the breakdown of the awards of the reverse repos by type of counterparty, which include Wall Street dealers, money market mutual funds, and government-sponsored enterprises such as Fannie Mae and Freddie Mac, the New York Federal Reserve said on its website. Under the Fed's fixed-rate reverse repo (RRP) program, the Fed pays bidders an interest rate for them to borrow its Treasuries holdings, resulting in less cash in the banking system." We review the NY Fed's new data set below, and we also review some of the milestone's in the Fed's RRP program in 2014.
The Reuters article explains, "The New York Fed plans to publish the breakdown information at or near the end of each quarter with a one-quarter lag. In the third quarter, money market funds remained the dominant users of RRPs with the heaviest day on Sept. 30 when they took $294.37 billion. GSEs were the next biggest class of RRP participants, followed by banks, according to the latest allotment. Daily RRPs to primary dealers or the top 22 Wall Street firms that do business directly with the Fed ranged from $100 million to as high as $26.06 billion."
An analysis of the new New York Fed data shows that money market fund usage of the RRP facility spiked at the end of the third quarter when MMFs purchased 98% of Fed repo. MMFs average share of the facility year-to-date through the third quarter was 78%, versus 14% for GSEs, 6% for Primary Dealers and 2% for Banks. MMFs average share of the total at quarter-ends jumped to 88%. While we don't know yet how large MMFs' share of Fed repo was on Dec. 31, 2014, the overall issuance was a surprisingly low (for quarter-end) $171 billion, according to the NY Fed's "Temporary Open Market Operations" statistics. (The Fed's new Term Repo program clearly took out much of the demand here.)
It was clearly a busy year for the New York Fed's ON RRP program, and changes to the program were one of the biggest stories of 2014. We review some of our coverage below.... We wrote in our Jan. 30, 2014, News, "Fed Extends Reverse Repo Program a Year, Increases Limit to 5 Billion," announcing that the NY Fed extended its trial repo program with money funds and cash investors by a year to Jan. 30, 2015 and increased the allotments for investors to $5 billion from $3 billion. Our Feb. 26 Link of the Day, "NY Fed Lifts Repo Rate to 5 Bps, said, "Beginning with the operation to be conducted on Wed., Feb. 26, the fixed rate offered in these operations will be increased from four basis points to five basis points."
In April, we featured, "March MF Holdings Show Fed Repo Skyrockets, Other Securities Plummet. We wrote, "That giant sucking sound you heard at month-end in March was money market investments leaving everywhere else and moving to the Federal Reserve Bank of New York's reverse repo program." On April 2, we reported, "Fed Repo Sets Record at Quarter End," as "participation in the Federal Reserve reverse repo program rose to a record high of $242 billion yesterday (3/31/14), surpassing the previous record of $197 billion that was set on December 31."
That record only lasted a quarter as detailed in our July 3 News, "JPM Says Fed RRP Hits Record." J.P. Morgan Securities wrote, "Yesterday (June 30, 2014), the Fed's overnight reverse repo facility (RRP) program allotted a record $340B to 97 approved program counterparties. There is a history of quarter-end surges in use of the RRP program, although this is by far the largest."
On Sept. 16, we wrote "NY Fed Revises RRP Terms to $30 Billion per Counterparty and $300 Billion Total." Our News explained, "Effective Monday, Sept. 22, 2014, each eligible counterparty will be limited to one bid of up to $30 billion per day, an increase from the current $10 billion per-counterparty maximum bid limit, and each operation will be subject to an overall size limit of $300 billion. If the sum of the bids received is greater than the overall size limit, awards will be allocated using a single-price auction based on the "stopout" rate at which the overall size limit is reached, with all bids below this rate awarded in full at the stopout rate and all bids at this rate awarded on a pro rata basis at the stopout rate."
On Oct. 3, we wrote "MMFs Hit Fed RRP Limit, Push Repo Rates Below 5 Bps; Small Victory," announcing, "The RRP hit record demand of $407 billion at the end of the third quarter, surpassing the previous record of $339 billion at the end of the second quarter (prior to the cap). As a result, the repo rate fell to zero."
Our Oct. 30 Link of the Day reported, "Fed to Test Other Rates on RRP, Offer Additional $300 Billion in Term Repo." It said, "For operations conducted October 30 to October 31, the offering rate is 5 basis points; for operations conducted November 3 to November 14, the offering rate is 3 basis points; for operations conducted November 17 to November 28, the offering rate is 7 basis points; for operations conducted December 1 to December 12, the offering rate is 10 basis points; for operations conducted December 15 and after, the offering rate is 5 basis points."
Finally, we reported Nov. 13, "New York Federal Reserve Looks to Expand RRP Repo Counterparties." The News piece said, "Effective today, the New York Fed is accepting applications from firms interested in becoming a counterparty eligible to participate in RRP transactions with the New York Fed." Watch for more news on the RRP program in coming days, as we approach the Jan. 30 expiration date. While most expect the program to be extended, there likely will be additional changes in the coming weeks and year.
