The Fed’s reverse repo use just hit a fresh record of $2.4 trillion — why that’s one of the clearest ‘bad signs’ for the market
There’s been yet another record-high uptake in the amount of cash investors are stashing in a major Federal Reserve facility.
The Fed parks excess cash reserves from banks in the Overnight Reverse Repurchase Facility. A reverse repo, or RRP, helps the central bank conduct monetary policy by selling securities to counterparties to be bought back for a higher price later on — essentially working as a short-term loan.
The RRP facility was hit with $2.367 trillion on Sep. 28, higher than the previous record of $2.359 trillion set on Sep. 22.
Investors are sticking with ol’ reliable cash in order to ride out the current economic uncertainty — but it doesn’t seem as though the market will return to normal anytime soon.
Invest your spare change and turn your pennies into a productive portfolio
Mitt Romney says a billionaire tax will trigger demand for these two physical assets
You could be the landlord of Walmart, Whole Foods and Kroger
Investors are tucking their cash away for safe-keeping
Rising interest rates have seen investors pull back on taking risks — the S&P 500 has plunged for three consecutive quarters — which means they’re now turning to avenues with lower risk and safer returns.
Enter cash and cash-like assets. Investments like money market funds, which are fixed income mutual funds that invest in short-term, low-risk debt securities, have been a safe space for investors during periods of high volatility.
The Treasury Department has been shrinking its cash balance from about $1.6 trillion at the beginning of 2022, to around $300 billion (returning to pre-pandemic levels). The drop in bill issuance means investors have needed a place to put their spare cash — and that place has been the RRP facility.
Since March, experts have been projecting that RRP usage would rise in order to help normalize cash supply levels.
Stay on top of the markets: Don’t miss the latest news and a steady flow of actionable ideas from Wall Street’s top firms. Sign up now for the MoneyWise Investing newsletter for free.
Then, in July, in explaining the increase in RRP participation, the Fed pointed to larger investments from money market funds and ongoing reductions in Treasury bill issuances, which impacted the yields of other investment options available to those funds.
Why this is a bad sign for the market
The Fed is currently paying an overnight rate of 3.05% as of Sep. 22 — the highest yield since 2013. It increased from 2.30% after the central bank recently lifted interest rates by 0.75 percentage points.
An increase in the reverse repo rate restricts cash supply and helps to correct inflation.
However, whenever banks and other financial institutions have turned to the Fed’s major lending facilities in the past, this has been a clear indicator of economic instability. It was strains on the repo market in back 2007 that brought about the financial panic of that year that led into the 2008 financial crisis.
Uptake in the RRP facility could continue to increase depending on the supply of short-term investments and demand from money market funds, Fed officials noted in the July meeting.
Bank of America strategists recently reported that investor sentiment is the worst it’s been since 2008. And the bank anticipates that cash and commodities will continue to outperform bonds and stocks.
For the week through Sep. 21, cash had inflows of $30.3 billion, according to EPFR Global data.
Experts forecast the market will remain volatile for the rest of the year, while fears of a recession next year continue to loom, further spooking investors.
What to read next
House Democrats have officially drafted a bill that bans politicians, judges, their spouses and children from trading stocks — but here’s what they’re still allowed to own and do
Billionaire Carl Icahn warns the ‘worst is yet to come’ — but when an audience member asked him for stock picks, he offered these 2 ‘cheap and viable’ names
Do you fall in America’s lower, middle, or upper class? How your income stacks up
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
I’m over age 72. What can I do about avoiding the required minimum distribution (RMD) tax bite? I have a steady stream of other income. -Bernie Tax-deferred accounts, such as 401(k)s and traditional individual retirement accounts (IRAs), are potentially great … Continue reading → The post Ask an Advisor: I’m Over Age 72. How Do I Avoid the RMD Tax Bite? appeared first on SmartAsset Blog.
Chip stocks have had a brutal ride in 2022. The tables have turned on a sector particularly sensitive to cycles; after seeing outsized growth during the pandemic, and despite the global chip shortage, waning demand has seen many in the segment hit hard. Factor in some lofty valuations, a slowing economy and fears of a full-blown recession and the result is the SOX (the main Semiconductor index) is down by 38% year-to-date. That said, there are many good companies operating in the space whose sha
The bodies of two Russian soldiers lay bloating in trees on opposite sides of the road, close to the blasted hulks of the cars and the van in which Ukrainian army officers said the dead men’s unit was retreating into the eastern town of Lyman. Unaware that their forces already had withdrawn from the key rail junction, the Russians last weekend drove into an ambush by Ukrainian special forces, their flight and lives ended by a storm of gunfire, the officers said. The bodies, the ruined vehicles and carpets of bullets, torn uniforms and metal shards testified on Wednesday to Moscow’s loss of Lyman to a Ukrainian counteroffensive that has reclaimed parts of Donestk province overrun by Russian forces earlier this year.
The big reason Florida insurance companies are failing isn’t just hurricane risk – it’s fraud and lawsuits
Hurricane Ian’s widespread damage is another disaster for Florida’s already shaky insurance industry. Even though home insurance rates in Florida are nearly triple the national average, insurers have been losing money. Six have failed since January 2022. Now, insured losses from Ian are estimated to exceed US$40 billion Hurricane risk might seem like the obvious problem, but there is a more insidious driver in this financial train wreck. Finance professor Shahid Hamid, who directs the Laboratory
The New York Times
WASHINGTON — U.S. intelligence agencies believe parts of the Ukrainian government authorized the car bomb attack near Moscow in August that killed Daria Dugina, daughter of a prominent Russian nationalist, an element of a covert campaign that U.S. officials fear could widen the conflict. The United States took no part in the attack, either by providing intelligence or other assistance, officials said. U.S. officials also said they were not aware of the operation ahead of time and would have oppo
The Daily Beast
Photo Illustration by Luis G. Rendon/The Daily Beast; GettyRussia’s ill-fated invasion of Ukraine is coming apart at the seams and top Kremlin propagandists are unraveling right along with it. In the absence of good news from the front, Putin’s regime is promoting other ideas on how to deal with the self-inflicted disaster.Prominent experts routinely featured on Kremlin-controlled state television roundly reject the mere idea of negotiations, and none of them dare suggest Russia’s withdrawal fro
The Elon Musk-Twitter (TWTR) saga took a turn towards resolution yesterday with news Musk would honor his deal to purchase Twitter for $44 billion. The drama for Tesla (TSLA) shareholders, however, will likely linger.
There is nothing wrong in principle with buying stocks for the income they generate, through dividends, instead of growth. It’s a strategy that’s especially appealing to retirees and others who need to live on the income from their investments. Multiple studies have shown that so-called “value” stocks, which typically includes companies paying out high dividends in relation to their stock price, have tended to be especially good long-term investments overall.
Exclusive-U.S. EPA expected to propose electric cars be eligible for renewable fuel credits -sources
NEW YORK (Reuters) -The U.S. Environmental Protection Agency is expected to propose that electric vehicles be eligible for renewable fuel credits in an upcoming proposal on biofuel blending mandates, three sources familiar with the matter said. The inclusion of electric vehicles into the federal Renewable Fuel Standard (RFS) would be one of the largest changes to the program since it began more than a decade ago. The EPA is expected to send the proposal, which will address mandates for after 2022, to the White House for approval by the end of next week, two of the sources said.