As "recession trading" prevails on Wall Street, fund managers are trying to find a safe haven for short-term money.

Data displayThe Fed's reverse repo tool exceeded $2 trillion for the first time on Monday.It reached $2.045 trillion, compared with the previous record of $1.988 trillion set on Friday. Market analysis shows thatThis highlights the surge in investor demand for safe-haven investments as interest rates rise and financial markets wobble.

Many investors will be confused.What is the Fed's overnight reverse repurchase tool?What does this surge mean? What will be the impact?

What is the Fed's overnight reverse repurchase tool?

Positive repurchase and reverse repurchase are two means of open market operation of the Federal Reserve, which directly release or recover the base currency through agreements with counterparties.Contrary to the central bank's open market operations, the Fed is repurchasing to release liquidity and reverse repurchase to recover liquidity.

The overnight reverse repurchase of the Federal Reserve has the function of withdrawing liquidity.Money market funds, banks and other institutional investors deposit cash with the Federal Reserve in exchange for high-quality collateral such as US Treasuries for only one day. To put it simply, buy collateral such as treasury bonds today, reduce cash, and sell it tomorrow. Cash back. In additionThe overnight reverse repo rate actually acts as the lower end of the federal funds rate corridor.

After the subprime crisis, overnight reverse repurchase (ON RRP) began to replace positive repurchase and the Federal Reserve became an important tool to control short-end interest rates.

What does the surge in reverse repo mean? What will be the impact?

According to Renfu's view of finance and economics,Fed reverse repurchase hit an all-time high at a time when US stocks rebounded and US bond yields fell.One shows that there is a shortage of assets in the American market.Capital rushed to the money market to avoid risks.Both show that there is a serious excess liquidity in the US market.The phenomenon of currency idling in financial markets is serious.The three show that high inflation in the United States is still difficult to contain.

Faced with the prospect of a rapid rise in interest rates, investors are shortening the maturity of their holdings as much as possible so that they can allocate cash more flexibly in the coming months when interest rates rise faster than expected.

In addition, the Fed is expected to start shrinking its huge balance sheet next month, when it will stop reinvesting all maturing securities in its portfolio, fuelling investor enthusiasm for using the Fed's overnight reverse repo tool.

Market analysis shows thatAlthough the Fed raised interest rates twice in March and May this year, it hinted that it would raise interest rates aggressively next.But for fund managers and banks, there are few other attractive options for storing excess cash, so they see the Fed's reverse repurchase as a safe haven.

According to the New York Fed,The overnight reverse repo tool will not change the size of the Fed's balance sheet, but it will change the composition of the Fed's liabilities.

For example, when money market funds reduce their deposits with banks and transfer them to overnight reverse repos, they reduce the balance of reserves held by banks at the Fed. As a result, the use of the overnight reverse repo tool has spread the Fed's liabilities more widely among money market participants.

Gennadiy Goldberg, senior US interest rate strategist at TD Securities, said:

The US Treasury is still reducing the supply of Treasuries, which seems to be pushing the market firmly into the arms of reverse repos, making it the only safe haven in the market.The main effect of the market pushing up the amount of reverse repos is that quantitative tightening is expected to quickly remove reserves from the system when the Fed starts to shrink its balance sheet, given that reverse repo use is still high.