U.S. overnight repo rate eases after Monday’s funding pressure

4:03 pm Tuesday, August 03rd, 2021

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The U.S. overnight repurchase rate fell on Tuesday, a day after funding pressures lifted the general collateral (GC) repo rate as high as 0.12% due to the settlement of last week’s Treasury auctions, traders said.

The overnight repo rate measures the cost of borrowing short-term cash using Treasuries or other debt securities as collateral.

Analysts expect repo rates to remain steady this week at 0.05% to 0.06% after a blip up on Monday.

One of many overnight repo rates, the GC rate refers to the level or figure corresponding to a basket of securities that trade normally. GC securities can be substituted for one another without changing the repo rate.

On Tuesday, the GC rate hit a high of 0.10% before closing at 0.04%, data from Curvature Securities showed. The repo rate hit a peak of 0.12% on Monday, the highest since February, and closed at 0.10%.

“No doubt the settlement of the 2-year, 5-year, and 7-year added to the pressure,” said Scott Skyrm, executive vice president in fixed income and repo at Curvature Securities in New York.

Last week, the U.S. Treasury sold $183 billion in notes of those maturities.

Skyrm said lingering month-end pressure had also pushed repo rates higher on Monday, although Friday, the last trading day of July, saw funding rates at an average of 0.04%.

Lou Crandall, chief economist at Wrightson ICAP, said Monday’s unexpected rise in repo rates attracted cash that would have otherwise gone to the Federal Reserve’s reverse repo facility.

On Tuesday, the reverse repo volume was $909.42 billion, down from $921.32 billion on Monday. On Friday, it hit a record $1.04 trillion.

The Fed launched its reverse repo program in 2013 to mop up excess cash and create a strict floor under market rates, particularly its policy rate. Eligible counterparties lend cash to the Fed in return for Treasury collateral on an overnight basis.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Barbara Lewis and Richard Chang)