On the last trading day of the third quarter, the amount of funds held by investors in one of the major instruments of the Federal Reserve reached a new high.

On Thursday, 92 participants invested a total of $1.605 trillion in the Federal Reserve's overnight reverse repurchase facility (RRP). Counterparties such as money market funds can use this tool to deposit cash into central banks. The previous record high was $1.416 trillion set the day before. The amount added on Thursday was the biggest one-day increase since mid-June.

The use of this instrument has skyrocketed because investors need a place to store their short-term cash and the US Treasury bill market is unbalanced — driven in large part by declining US government cash balances and Federal Reserve asset purchases. Fears about the possible impact of a default on the debt ceiling also boosted demand, in addition to end-of-quarter effects in money markets.

“Even if usage continues to rise, this should be a high level of RRP in the short term,” said TD strategist Gennadiy Goldberg. “If the debt ceiling is suspended before mid-October, it should push up treasury bill supply, which may help reduce RRP usage.”