Dollar Glut Drives Usage of Fed Reverse Repo Facility to Record

(Bloomberg) -- Demand for a key Federal Reserve facility used to control short-term rates surged to the highest on record, accommodating a barrage of cash in search of a home.

Fifty participants on Thursday parked some $485.3 billion at the overnight reverse repurchase facility, in which counterparties like money-market funds can place cash with the central bank. The total surpassed the previous record volume of $474.6 billion from Dec. 31, 2015, Fed Bank of New York data show. The amount placed on Wednesday was $450 billion.

Even though the offering rate on the Fed facility is 0%, demand has been increasing as a flood of cash overwhelms U.S. dollar funding markets. That’s in part a result of central-bank asset purchases and drawdowns of the Treasury’s cash account, which is pushing reserves into the system. Recent stimulus payments to state and local governments are adding more cash to the front-end, while regulatory constraints are also spurring banks to turn away deposits and direct that cash to money-market funds.

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