Original title: break the record again! Is it far from the Fed's overnight reverse repo usage exceeding $800 billion for the first time to scale back its bond purchases?

Source: FX168

On June 23, the use of the Fed's overnight reverse repo facility hit another record, exceeding $810 billion for the first time.

Turnover in the Fed's reverse repo operation reached a record $813.573 billion on Wednesday as financial institutions continued to inject cash into overnight instruments.

The $800 billion is already equivalent to the 10-month purchases of treasury bonds in the Fed's current round of QE. This is a sign that investors can hardly see attractive investment options in a low-yielding environment.

The daily operation includes 73 bidders, up from $791.6 billion on Tuesday. Prior to this, it has exceeded 700 billion US dollars for four consecutive trading days.

Although trading volumes have been increasing since March, they rose further after the Fed last week raised the reverse repurchase agreement interest rate from 0 per cent to 0.05 per cent. This is part of a technical adjustment by the Fed to prevent the benchmark effective federal funds rate from falling too low.

This shows that monetary policy is really tightening, and it is not just a technical problem as the Fed says. For those concerned about the amount of money in circulation, the Fed absorbs the equivalent of two months of quantitative easing in one day, showing how much cash in the system is searching for even tiny gains.

With the easing of the Fed's quantitative tightening policy from 2014 to 2018, the US financial system is also teetering under huge amounts of cash after years of quantitative easing, and the Fed withdraws some of the cash through reverse repos.

Demand for the use of the Fed's reverse repo tool has been rising because of excess liquidity in the dollar financing market. The Fed's asset purchases and the Treasury's reduction of cash account balances are part of the reason for excess liquidity.

How can we solve the current problem of excessive liquidity of the US dollar? In response, many industry insiders said that although the Fed raised the excess deposit reserve ratio ((IOER)) and the overnight reverse repo rate ((ONRRP),) last week, if it wants to get to the root of the problem, the Fed may have to start the process of reducing QE as soon as possible.

Huaxin Securities Research News believes that the main role of the Fed's reverse repurchase is to withdraw funds, in the opposite direction to the reverse repurchase of the open market operations of the people's Bank of China. The Fed's overnight open market operations have risen rapidly recently, a trend that has been under way for some time and may be a prelude to scaling back bond purchases in the future.