Wells: Fed Repo at $1.18 Trillion

Sep 02 21

Wells Fargo Securities latest "Daily Short Stuff," written by Vanessa Hubbard McMichael, discusses the "Fed's RRP and rates" at month-end, and also reviews some recent SOFR statistics. She tells us, "Yesterday, the Fed's RRP reached $1.18 trillion with 82 counterparties participating. Since August 11th, usage at the facility has been at or above $1.0 trillion each trading day. Activity at this facility continues to trend higher and is expected to remain elevated as front-end government supply declines. GCF repo, based on the DTCC Treasury index, ended yesterday a touch on the elevated side considering recent closing levels. This index closed yesterday at 6.1 basis points, which is the highest close since the beginning of August.... Last week, GCF repo levels closed each trading day in a range of 2.2 to 6.0 basis points, with the lower-bound limited to Monday." Wells' strategist writes, "Front-end Treasury rates were unchanged yesterday versus Monday levels and the shortest tenors remain unmoved as we write today. The 2-year Treasury note closed yesterday at 20.9 basis points and the 5-year at 77.7 basis points." She also says, "SOFR issuance continues to hum along," explaining, "Last week concluded with another sub $4.0 billion in total investment grade SOFR issuance. Just $3.3 billion came to market for transactions with at least $50 million in par amount from both GSE and financial issuers. SOFR continues to set at 5 basis points and spreads remain mostly unchanged. The most interesting shift last week was FHLB's flat spread extending out to its 7-month maturity. In recent data, FHLB has priced securities at 6-months or less at SOFR+0 basis points but last week, its 7-month tenor also priced at this level.... FFCB and FHLB were the standing GSE issuers in the SOFR market last week. The Federal Farm Credit Bank priced $800 million across 13-month to 24-month maturities while the Federal Home Loan Bank priced $500 million across a much tighter maturity band of 7-months to 9-months." McMichael adds, "All of the financial SOFR securities in the data from last week were in the form of Yankee CDs spanning a maturity range of 6-months to 13-months. 6-month transactions came to market from Mitsubishi UFJ Trust & Banking Corporation of New York (A1/A/A-), Mizuho Bank, Ltd. of New York (A1/A/A-), and the Commonwealth Bank of Australia of New York (Aa3/AA-/A+) at SOFR+10 basis points, SOFR+9 basis points, and SOFR+7 basis points, respectively. The Bank of China Limited of New York (A1/A/A) priced a $100 million 9-month at SOFR+12 basis points and Credit Agricole Corporate and Investment Bank of New York (Aa3/A+/A+) priced a $450 million 9-month at SOFR+12 basis points. 12-month CDs priced at SOFR+14 basis points from the Bank of Nova Scotia of Houston (Aa2/A+/AA-) and Goldman Sachs Bank USA of New York (A1/A+/A+) at SOFR+16 basis points. Finally, the Bank of Nova Scotia of Houston (Aa2/A+/AA-) priced a $300 million 13-month at SOFR+15 basis points. Week-to-date, SOFR issuance has reached $1.67 billion amongst GSE and financial issuers. FHLB priced a chunky 13-month yesterday, its first $1.0 billion SOFR transaction since early August. During the month of August, FHLB has priced just over $4.0 billion in SOFR securities compared to over $7.0 billion in July."

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