Demand for a key Fed repo tool used to control short-term interest rates soared to more than $500 billion for the first time as a flood of cash in the market was looking for a way out.

New York Fed data showOn Wednesday, 59 participating institutions deposited a total of $502.9 billion with the Fed through overnight reverse repos, surpassing the previous record high of $497.4 billion set on Tuesday.

The Fed's overnight reverse repo tool does not provide returns at all, but the demand for reverse repos is still growing because of the flood of liquidity in the dollar financing market. Excess liquidity is caused by asset purchases by the Federal Reserve and by the reduction of the US Treasury's account cash balance, resulting in an increase in system reserves.