Tsunami of Cash Threatens to Pin Funding Rates at 0% Until 2022
- Usage of Fed’s reverse repo facility has risen to $450 billion
- ‘Limited reprieve in sight,’ Bank of America strategists say
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The amount of cash sloshing around in U.S. dollar funding markets looks unlikely to abate anytime soon and that’s set to put downward pressure on short-term rates until next year unless officials act to alter the situation.
That’s the view of strategists at Bank of America Corp., who foresee further increases in usage of the Federal Reserve’s reverse repurchase agreement operation -- a facility that’s become a go-to place for parking cash. While it offers absolutely zero yield, the facility at least doesn’t charge investors for the privilege of keeping cash there, which is effectively what happens when yields go negative.