Over the past few days, the size of the Fed's Reverse Repos have been rising rapidly, with yesterday's operation jumping to $143 billion among 52 counterparties, the highest in months as the quarter end collateral scramble goes full throttle. Nowhere is this more obvious than in the overnight general collateral rate. As Stone McCarthy reports, the overnight general collateral rate has jumped to 0.75% this morning. The GC rate has spiked at the end of every quarter for over a year, as money funds face increased regulations and need to streamline their balance sheets at quarter end, in other word "window dress" balance sheets and make them appear better than they are for regulatory purposes.
Following previous quarter end spikes, the GC rate has dipped back to more usual levels the next day. However, this quarter end spike followed a week of highly elevated rates, so the decline may not be as abrupt as prior quarter end spikes.
The fed funds rate has dropped to 0.28% this morning, down from 0.42% yesterday. Even though the fed funds rate had been elevated for the past week, that didn't stop it from its usual quarter end drop. The fed funds rate has dropped at month-end for over a year, with the largest moves tending to occur at quarter end. It then bounces back to usual levels by the next morning. Today's drop followed a week of elevated fed funds levels, so it will be interesting to see if the fed funds rate reaches such high levels by tomorrow morning.
We look forward to today's last of the month and quarter reverse repo for more insight on just how significant the regulatory collateral shortage remains.