FED Balance & Repo activity

All time high. Most used quote in 2020/2021.

All time low. Not this time.

Lately i noticed while i was hearing Bloomberg news that Reverse repo operations touched all time highs, two times in almost 7 trading days.

As we know, central banks use reverse repos to add money to the money supply via open market operations, and lately Central Bank warned of a rise in interest payment from 0.0% to 0.5%, so many analysts believed that this was the cause of the rush.

But how un-expected this data was, and what can we observe?

1) Repo rate is used by monetary authorities to control inflation. In the event of inflation rate rise (5.4% - 3,67%>10YAverage), central banks increase repo rate as this acts as a disincentive for banks to borrow from the central bank, with the final goal of reducing money supply in the economy in function to arrest inflation.

So, latest moves could underline fears of repo rates rise, so a decrease of money supply. Or as we can say, taper clock.

2) In 12/08/2021, with a normalized value of 0,0000000000000177, and a total amount of 1087,3(USD Billions), Z-Score position was 7,19 standard deviations (σ) away from the mean.

This data is very useful, cause it means "Urgency".

Those big operations weren't made calmly in pre-determined tranches, but in a hasty transaction, that everyone noticed.

3) From 2003 to 2019(31/12), total amount of Overnight Reverse Repurchase Agreements was 126.994B.

From 2020 to 2021(Last trading days data), total amount was 51.394,12B, so 40.27% in 6.25% of time.

4) Strangest thing to think on is that, US Federal Reserve is using reverse repos in vast quantities even as it continues to run QE at $120 billion a month (based on July data).

In fact talking in QE words, latest operations of all time high (1087B), accounted for 9.06 months of Quantitative Easing.

*Hyman Minsky joins the chat

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