When we reported yesterday's record reverse-repo surge [5], driven entirely by collateral-strapped financial entities scrambling to "window dress" their balance sheets with rented Fed-owned Treasurys for regulatory purposes, we said "Expect total reverse repo usage tomorrow to plunge by at least $150 billion as the banks will have fooled their regulator, which also happens to be the Fed, that they are safe and sound. Rinse, repeat, until the entire financial system collapses once again and people will ask "how anyone could have possibly foreseen this." Moments ago the Fed reported the daily reverse repo use [6]. It turns out we were optimistic: it wasn't $150 billion, it was $189 billion. Following yesterday's $339 billion allottment, today this number tumbled to just $151 billion, meaing nearly $200 billion in fungible cash had to quick find a new home away from the Fed.
Which, incidentally explains where the relentless buying in today's market is coming from: today the Fed just released liquidity for two months worth of POMO in one day - money which promptly had to find a parking spot until the next quarter end when the same window dressing exercise is repeated and which will continue to go on completely unnoticed by regulators.
[7]
