Barclays' Joseph Abate writes in his latest " US Weekly Money Market Update", "Usage of the Fed's fixed rate reverse repo (RRP) program is about 60% higher in May than April, reflecting the low level of market rates and the shrinkage in bill supply. As seasonal net issuance picks up in the bill market, we expect rates to move up and facility usage to decline. Average daily RRP usage this month as been nearly $200bn and accounts for roughly one-third of the outstanding amount of Treasury tri-party repo. Overnight GC rates have not traded below the Fed's fixed rate on these transactions since the end of January, despite significant and persistent downward rate pressure. Although money funds are the Fed's single biggest RRP counterparty, we estimate that the GSEs may account for about 25% of participation. The Federal Reserve might consider further testing the timing of its repo operations to absorb more late afternoon cash.... Despite being a test that is nominally temporary and set to end next January, the Fed's fixed rate RRP has been remarkably popular this month. So far in May, usage has exceeded $190bn/day across a fairly consistent number of counterparties (60). Usage is about 60% higher than the April level which itself was the previous peak since testing began last September. This month's heavy usage reflects the low level of market rates caused by the absence of competing bill supply. At the end of April, the outstanding amount of Treasury bills was 14% lower y/y (and down 11% from the end of March). Bills account for the smallest share of the total amount of marketable debt (12.2%) since early 1953. Unsurprisingly given the demand for safe assets from money market funds, the seasonal thinness in bill supply has pushed other short-term interest rates lower. Not only are bills with maturities out to 6m trading at less than 5bp, but also overnight Treasury repo has been pinned at 5bp since late April while strong demand has pushed AA financial CP rates lower (to 12bp) and 3m Libor continues to fall. Although it is impossible to prove otherwise, we suspect that the bill supply pressures would have pushed these other interest rates close to 0bp in the absence of the Fed's RRP program. Instead, the Fed's RRP program appears to have established a largely impermeable floor at its fixed rate. Indeed despite significant downward rate pressure, overnight GC has not traded below the fixed rate since the end of January."

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