Fed Repo Facility Use Jumps to Record High on Final Day of 2021

(Bloomberg) -- The amount of money that investors are parking at a major Federal Reserve facility climbed to yet another all-time high on the final trading day of the year as funds sought out places to stash short-term cash.

More than 100 participants on Friday put a total of $1.905 trillion at the Fed's overnight reverse repurchase agreement facility, in which counterparties like money-market funds can place cash with the central bank. The previous record, set on Dec. 20, was $1.758 trillion. Friday's $208 billion leap was the biggest one-day increase in usage since June 17 after the central bank increased the offering yield to 0.05%. That compares to the last trading day of 2020 when a mere 15 counterparties tapped the facility for $9.65 billion.

The current glut of cash in money markets -- and the resulting record use of the RRP facility -- stands in contrast to what has taken place in many years gone by. The final business day of each year has often proved to be a pressure point for funding markets, with borrowers clamoring for investors' spare dollars and causing spikes in key lending rates. But the landscape has changed.

Usage of the facility has exploded this year as investors need somewhere to park their short-term cash, and there is an imbalance in Treasury-bill markets that's been fueled in large part by a drawdown of the U.S. government cash balance and Fed asset purchases. Demand for the facility has also tended to surge at the end of each quarter as dealers curtail their activity in the market for repurchase agreements in order to shore up their balance sheets for regulatory purposes.

That said, even without quarter-end factors in play, demand has regularly exceeded $1 trillion since August and strategists think the robust appetite for using the facility is unlikely to abate until the central bank halts its asset-purchase program. The Fed earlier this month said it will double the pace at which it's scaling back purchases of Treasuries and mortgage-backed securities to $30 billion a month, putting it on track to conclude the program in early 2022, rather than mid-year as initially planned.